EC9011
UNIVERSITY OF WARWICK
January Examinations 2019/20
Economic Analysis: Microeconomics – SOLUTIONS
Time Allowed: 3 Hours plus 15 minutes reading time during which notes may be made (on the
question paper only) BUT NO ANSWERS MAY BE BEGUN.
Answer FOUR questions: TWO questions must be from Section A and TWO questions must be
from Section B. Answer Section A questions in one booklet and Section B questions in a separate
booklet. All questions carry equal weight.
Approved pocket calculators are allowed.
Read carefully the instructions on the answer book provided and make sure that the particulars
required are entered on each answer book. If you answer more questions than are required and do
not indicate which answers should be ignored, we will mark the requisite number of answers in the
order in which they appear in the answer book(s): answers beyond that number will not be
considered.
Section A: Answer TWO questions
1. (a) The yi are minimum necessary levels of consumption. The assumption z 0
so the goods are Hicksian substitutes. (5 marks)
2.(a)(i) –c + x is ordinary utility, v(c ≠ rc) + v(x ≠ rx) is the gain-loss part of the utility
function. (4 marks)
(ii) A personal equilibrium is a (cú, xú) where (1) (cú, xú) maximize u(c, x; rc, rx) subject to
pc + x = m; (2) rc = cú, rx = xú. (4 marks)
(iii) A PE with car purchase satisfies
– + m ≠ p m ≠ + (m ≠ (m ≠ p))
– + 2p p pmax
– +
2
(4 marks)
(iv) PE without car purchase satisfies
m – + m ≠ p + 1 ≠ p
– + 1 (1 + )p p pmin
–
1 +
+ 1
