At a certain consumption bundle A = (x1 ; x2 ), it is known that Tom’s

At a certain consumption bundle A = (x1
; x2
), it is known that Tom’s
marginal utility for G1 is 8 and that of G2 is 24. If the price p1 = 4 and p2 = 8. Assume
that preference are well-behaved and 0 < x1
< m=p1 and 0 < x2
< m=p2.
(A) Tom’s optimal choice requires consuming more of G2 than at A.
(B) Tom’s optimal choice requires consuming less of G2 than at A.
(C) Tom’s optimal choice is (2; 3).
(D) None of the above.
Exercise 6. Walt considers x and y to be perfect substitutes. They originally cost $10
and $9 respectively. His income is $720. One day the price of x drops to $8.
(A) The income eect increases the quantity of y by 90.
(B) The substitution eect increases the quantity of y by 80.
(C) The substitution eect increases the quantity of x by 90.
(D) None of the above.
Exercise 7. When the price of x rises, Marvin responds by changing his demand for x.
The substitution eect is the part of this change that represents his change in demand
(A) holding the prices of substitutes constant.
(B) if he is allowed to substitute as much x for y as he wishes.
(C) if his nominal income is held constant when the price of x changes.
(D) if the prices of all other goods are held constant.
(E) None of the above.
Exercise 8. When the prices were ($5, $1), Vanessa chose the bundle (x, y) = (7, 4).
Now at the new prices, (px, py), she chooses the bundle (x, y) = (6, 8). For Vanessa’s
behavior to be consistent with the weak axiom of revealed preference, it must be that
(A) 4py < px
(B) px < 4py
(C) 5py < px
(D) None of the above.
Exercise 9. Suppose there are two states with probability  and 1 ? . Consider the
following utility functions for consumptino (c1; c2) in the two states. Ua(c1; c2) =  log(c1) + (1 ? )
p
c2 (1)
Ub(c1; c2) =  log(c1) + (1 ? ) log(c2) (2)
Uc(c1; c2) = 2 log(c1) + (1 ? ) log(c2) (3)
Ud(c1; c2) = 
p
c1 + (1 ? )
p
c2 (4)
If Rob, the consumer, satises the expected utility hypothesis, then neither the utility
function nor the function could represent his preferences.
(A) Ub, Uc
(B) Ua, Uc
(C) Ua, Ub
(D) Ud, Ub
(E) None of the above.

Conside three assets A, B and C whose payos in the in the two states !1
and !2 are shown below. Only two of these three assets are traded in a certain market.
A B C
!1 78 87 66
!2 39 35 33
Markets are not complete if asset and asset are traded.
(A) A, B
(B) A, C
(C) B, C
(D) Markets are incomplete for more than one of the above combinations
(E) Not enough information is supplied to conclude any of the above.