OAK UNIVERSITY

SCHOOL OF BUSINESS
EC 211: INTERMEDIATE MICROECONOMICS TERM 2 TEST Jun20 (F.T) 1 HOUR

_________________________________ANSWER ALL [50 MARKS]_________________________________

Given the purse of a consumer by the name of Chitwa and assuming that she is consuming only two goods,
good 1 and good 2 denoted by and whose prices are and respectively.
a) Mathematically show how many units of good 2 Chitwa needs to consume in order to just satisfy the purse
if she is consuming units of good 1 (2)
b) Derive the equations for the intercepts and draw the budget line for Chitwa (4)
Emmanuel wants to maximize utility given the utility function

s.t X+ Y=I

Derive the utility maximizing bundle of X and Y using lagrangian multiplier method (10)
The utility function of and is given by ( ) . Assuming Hellen has income of K220,
the price of good is K2 and that of good is K4.
a) Find the optimal consumption bundle of Tina (5)
b) Find her optimal utility and draw the indifference curve showing the point of tangency. (5)
Suppose a consumer has preferences over two good that can be represented by the utility function
( ) 2 X+Y
a) Is the assumption that more is better satisfied for both goods? (2)
b) Does the marginal utility of x diminish, remain constant, or increase as the consumer buys more x?
Explain. (3)
c) What is the expression for ? (1)
d) Is the diminishing, constant or increasing as the consumer substitutes more of x for y along an
indifference curve? (1)
e) Find the at x=4 (2)
For each of the following utility functions, find the marginal utilities (MUx and MUy) and the marginal rate of
substitution between x and y, MRSxy, and explain whether MRSxy is diminishing or not. (9)
a) u(x, y) = 3x + y
b) u(x, y) = Y
c) u(x, y) =
What are the four basic assumptions of consumer preferences? Explain the significance or meaning of each. (4)
What does the law of diminishing marginal utility state? (2)

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