1What is the mathematical condition for utility maximization (at the optimum)?What is the interpretation of this condition? What is the adjustment process if this condition does not hold?

2. In case of a price increase, what happens to the utility level of a consumer if the person is compensated in cash to be able to buy the original combination? Support your answer graphically.

3.What happens to the utility of a food stamp recipient--coupons entitling certain type of food items--if he/she is compensated with cash instead?Support your answer graphically.

4. a. Derive graphically the demand curve from the utility analysis. b. Show how an income change affects the demand curve.

Evaluate critically (Take a position whether the statement is correct, incorrect or partially correct and explain your position within the material covered for the test): "A recent issue of a major newspaper reported that a pharmaceutical company with a patent right for a vital medicine should not mind the decline in its supply due to long-run production issues.."

5. Evaluate critically: "The manager of a liquor -manufacturing company (with a degree in economics!) raised the price of its alcoholic beverage after an industry wide-study showed that the demand for alcoholic beverages was price-inelastic. While he was expecting an increase in revenues, exactly the opposite has resulted."Justify whether his boss should dismiss him.

6. Interpret the following cross-price elasticities:

Exy = -0.8

Exy=1.4

7. Calculate the income elasticity with the following information and interpret your results: Consumption of a good decreases from 1,100 to 900 units as the income of the individual increases from $575 to 625.

5. In a primitive economy where only two goods are produced, decision makers wish to increase their coconut production by the following increments in each year. Change in coconuts Change in beans 20 ...... 20 ...... 20 ...... 20 ...... 20 ...... What may be the corresponding quantities of beans that must be given up if this economy is fully utilizing its resources and enjoying specialization? 9. Consider the following demand function and the supply schedule for bread: Demand function: QC1 = -2P+20 and; Supply schedule: P QS 4 4 8 12 '12 20 a. determine the supply function and solve the equations for the equilibrium values (show your work). b. Show what happens if the authorities impose a price restriction at $8.00. What may be the justication for it? c. Show graphically and explain what happens to the price and quantity at equilibrium if the price of bagels rises and while the cost of energy to bake the bread increases