# Spring 2016 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.

### Question 4

(a) Household B has perfect complements preferences; d = 3.

(b) Derivation omitted; result is X = d*M/(d*Px+Py) and Y = M/(d*Px+Py).  Also ok to insert 3 for d.

(c) New equilibrium: X = 153, Y = 51; CV = $76 (household is worse off); net revenue =$204 - $132 =$72; change in SS = $72 -$76 = -$4. Diagram omitted but it should show the budget constraint, equilibrium, and at least one indifference curve. ### Question 5 (a) Initial equilibrium: X = 150, Y = 50; new X = 80. (b) CV =$521; household is worse off.

(c) Income effect = -26.2; substitution effect = -43.8.

### Question 6

(a) PVI = $211,818; Co =$52,955; C1 = $174,750; borrows$22,955.

(b) Graph omitted.  Should show the endowment point, budget constraint, PVI, final equilibrium, and at least one indifference curve.

URL: https://wilcoxen.maxwell.insightworks.com/pages/4182.html
Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 04/21/2016