# Fall 2009 Exam 2 Solution

Here are the final numerical results for each section of the exam.  You can use them to check your work if you do the exam for practice.  If you have trouble with the problems, or don't get the answers shown here, stop by during office hours or make and appointment and we can go over them.

### Part 1, Question 1a

M = U * (Px/a)^a * (Py/(1-a))^(1-a)

a = Px*X/M

Values of a for household A: 2007 a=10*30/1000 = 0.3, 2008 a=12*30/1200 = 0.3.  Since the values match, household A has Cobb-Douglas preferences with a = 0.3.  The households do not have Cobb-Douglas preferences: their values of a in 2007 and 2008 do not match.

X = 50, Y = 175.

### Part 4

PV of income = 358k.  C0 = 159k; C1 =239k; initial borrowing = 9k.  The graph should show the intertemporal budget constraint with the endowment at (150k,250k), 358k as the X intercept and 430k as the Y intercept.  It should also show the equilibrium at (159k,239k) and at least one indifference curve.

URL: https://wilcoxen.maxwell.insightworks.com/pages/3044.html
Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 12/01/2009