INTERMEDIATE MICRO- ECONOMICS

QUESTION ONE  

• Highlight the axioms of consumer preference. (3mks)
• Distinguish between a good and a bad. (2mks)
• Distinguish between the weak axiom of revealed preferences and strong axiom of revealed preference.                                                 (2mks)
• Given a Cobb-Douglas utilityfunction of U=x₁⁵X₂^0.5_.

Required:

(i) Marshallian demand functions                 (6mks)

(ii) Indirect utility function                               (3mks)

(iii) Expenditure functions                                (2mks)

(iv) Hicksian demand curves                           (4mks)

• Illustrate the total change in demand for an inferior good. (3mks)

 

QUESTION TWO

• Given a Cobb-Douglas production function f(x)=x^a.

Required: (i) Explain the reason Cobb-Douglas production function is

preferred to  other production functions.  (2mks)

(ii) Input demand function.                                       (4mks)

(iii) Output supply function.                                                  (2mks)

(iv) Profit function.                                                       (2mks)

• Discuss the properties of cost functions. (5mks)

 

QUESTION THREE

• (i) Discuss the concept of the Edgeworth box in depicting the

endowments and preferences of two individual consumers.

(6mks)

(ii) Describe a Pareto efficient allocation.                                   (4mks)

• Distinguish between moral hazard and adverse selection. (5mks)

 

QUESTION FOUR

(a)Illustrate the upstream and downstream producer problem.         (8mks)

(b) Discuss public goods and the free rider problem.                                 (7mks)

 

QUESTION FIVE

Discuss externality and efficiency effects in the market.                          (15mks)