Intermediate Microeconomics (ECO211)
DIPET 1 in Economics - ECNT
Semester: First Semester
Level: 300
Year: 2019
Intermediate Microeconomics CA -2018/2019 Academic Year
TIME: One Hour
1. Cletus was consuming 100 units of x and 50 units of y. The price of x rose from
2F to 3F. How much would Rosa’s income have to rise so that she can still
exactly afford 100 units of x and 50 units of y?
2. Differentiate between Ordinal and Cardinal Utility.
3. Illustrate and explain the Engel Curve for normal and inferior goods.
4. Distinguish between the Marshallian and Hicksian demand curves.
5. You have an income of 400F to spend on two commodities. Commodity x costs
100F per unit and commodity y costs 50F per unit.
a. Write down your budget equation and represent it graphically. (Put commodity x
on the horizontal axis and commodity y on the vertical axis). Call this budget A.
b. Suppose that the price of commodity x falls to 50F while everything else stays the
same. Write down and represent graphically your new budget equations. Call this
budget B.
c. Suppose the amount you are allowed to spend falls to 300F, while the price of
both commodities remain at 50F. Write down your budget equation and represent
it graphically. Call this budget C.
d. Which of the three budgets gives the consumer the largest set of consumption
opportunities?
e. Compare budgets A and C. At which bundle of commodities do they cross?
Shade the area representing commodity bundles affordable with budget C but not
affordable with budget A. Shade the area of commodity bundles affordable with
budget A but not affordable with budget C.
6. For Cletus, coffee and tea are substitutes, but not perfect substitutes. Likewise, he
regards butter and toast as complements, but not perfect complements.
a. Draw Cletus’ indifference curves between coffee and tea.
b. Draw Cletus’ indifference curves between butter and toast.
c. With the information given, is it possible to identify any significant difference
between the two set of curves in (a) and (b)?
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