Section A: Short Answers True/False Answer eight (8) of the following ten (10) questions in this section as described for each question. Where appropriate, be sure to justify your responses along with showing the appropriate formulae, as no marks will be rewarded without justification. Each question is worth 5 marks. 1. In the general equilibrium model with production and trade, we have found that in equilibrium, consumer utility will be tangent to each other at a point on the production possibility frontier. Is the preceding statement true, false, or uncertain. 2. David is an expected-utility maximizer that likes to drive fast (and reckless at times), so his probability of an accident is 2/3. David's preferences over wealth are u(w) = y/w. Suppose that David's initial wealth is $100. If David has an accident, he incurs a $51 loss. How much is the risk premium David willing to pay to be as well off in case of accident or not? 3. For amonopolist with linear demand curve and constant marginal costs, show that the consumer surplus is equal to the DWL. 4. A competitive firm has a cost function given by C(y) = 10y 2y? %yz what is the firm's long run supply curve? Can you verify this to be the case? 5. In an exchange economy, there are two people, A and B, and two goods, x and y. The utility functions of A and B are given by u=xy: for i=A, B. Person A starts with 72.000 units of x and zero units of y. Person B starts with zero units of x and 8.000 units of y. If the price of good yis 1, what is the competitive equilibrium of good x? 6. Consider the following \"portfolio choice problem. The investor has initial wealth w and utility u (x) = In (x). There is a safe asset (such as a Canadian government treasury bills) that has net real return of zero. There is also a risky asser with a random net return that has only two possible returns, r with probability g and ro with probability 1 - g. Let x be the amount invested in the risky asset, so that w x is invested in the safe asset. Will the investor put more or less investment into the risky asset as their wealth grows? 7. In the general equilibrium model, prove that aggregate excess demand necessarily will be zero using Walras Law. In general, what is the implication of the result? 8. The implications of the first and second welfare theorems imply that any allocation subsequent to the initial endowment (within the Edgeworth box say) is possible as a Walrasian equilibrium. Is the This study source was downloaded by 100000783486959 from CourseHero.com on (%-20-2024 07:43:10 GMT -05:00 hitps://www.coursehero.com/file/1 82359383 final- RAY0REEs LYoARIRed Msallem (msallem.ahmed@gmail.com) preceding statement true or false? Explain. 9. Consider Alpha (firm 1) and Bravo (firm 2), two types of firms in a competitive industry with cost functions given by: C,(y) =10+ 5y; + 0.5yf C;(y) =20+y, +0.75y; Given this information, what is the industry supply curve? 10. Explain with the aid of a diagram why perfect price discrimination is the same as an optimal two part tariff