UL11/0178 D01 Page 1 of 7 This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON 279 0066 ZB BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences, the Diplomas in Economics and Social Sciences and Access Route for External Students Microeconomics Monday, 16 May 2011 : 2.30pm to 5.30pm Candidates should answer ELEVEN of the following SIXTEEN questions: EIGHT from Section A (5 marks each) and THREE from Section B (20 marks each). Candidates are strongly advised to divide their time accordingly. A calculator may be used when answering questions on this paper and it must comply in all respects with the specification given with your Admission Notice. The make and type of machine must be clearly stated on the front cover of the answer book. Š University of London 2011 PLEASE TURN OVER
SECTION A Answer eight questions from this section (5marks each). 1. Consider an economy with two goods, Bread (B) and Milk (M). Jo likes both goods and her marginal rate of substitution between the two goods is diminishing. The price of M is 3 and the price of B is 1. At the current consumption basket, her marginal rate of substitution of Milk for Bread (MRSM,B) is 2. Is Jo currently at her optimum consumption? If your answer is yes, show why. If your answer is no, clarify how her consumption basket should change to reach her optimum. 2. Suppose that the government subsidizes housing expenditures of low-income consumers by providing a dollar-for-dollar subsidy to a consumer’s housing expenditure -i.e. if a consumer spends x of his own on housing, the government gives him x, making total housing expenditure 2x. Ariel qualifies for this subsidy and spends a total of 500 per month on housing: he spends 250 of his own and receives a government subsidy of 250. Recently, a new policy has been proposed that would provide each low income consumer with a lump sum transfer of 250 which can be used for housing or other goods. Using…