1 TRUE, FALSE, UNCERTAIN AND EX- PLAIN: 30 Marks Answer all questions. Your mark will depend almost exclusively on the logic of your EXPLANATION. 1. Jason is risk averse. He believes that if the NDP government wins the next provincial election his income will be reduced by $1,750 as a result of new government policies. Bookmakers are offering odds on an NDP victory such that for every dollar bet, he makes a net gain of $0.75 if the NDP wins (i.e., if he bets B dollars and wins, he gets $1.75B back). He believes that the probability of a NDP victory is 4/7. Jason will bet $1500 on an NDP victory. (10) 2 2. Dude's expenditure function is e(p, u). His demand function for White Russians (a cocktail consisting of vodka, Kahlua and cream) is rup, y), where p is vector of prices and y > 0 is his income. White ans are a normal good for Dude if and only if ze(p, u)/Opwdu > 0, where Pw is the price of White Russians. (10) 3. An individual has an Indirect Utility Function V (P1, P2, M), where p is the price of good 1, P2 is the price of good 2, and M is income. You are told that V(1,2, M) > V(2,1, M). It therefore follows that the consumption of good 1 exceeds the consumption of good 2 when P1 = 1 and p2 = 2. (10) 1 TRUE, FALSE, UNCERTAIN AND EX- PLAIN: 30 Marks Answer all questions. Your mark will depend almost exclusively on the logic of your EXPLANATION. 1. Jason is risk averse. He believes that if the NDP government wins the next provincial election his income will be reduced by $1,750 as a result of new government policies. Bookmakers are offering odds on an NDP victory such that for every dollar bet, he makes a net gain of $0.75 if the NDP wins (i.e., if he bets B dollars and wins, he gets $1.75B back). He believes that the probability of a NDP victory is 4/7. Jason will bet $1500 on an NDP victory. (10) 2 2. Dude's expenditure function is e(p, u). His demand function for White Russians (a cocktail consisting of vodka, Kahlua and cream) is rup, y), where p is vector of prices and y > 0 is his income. White ans are a normal good for Dude if and only if ze(p, u)/Opwdu > 0, where Pw is the price of White Russians. (10) 3. An individual has an Indirect Utility Function V (P1, P2, M), where p is the price of good 1, P2 is the price of good 2, and M is income. You are told that V(1,2, M) > V(2,1, M). It therefore follows that the consumption of good 1 exceeds the consumption of good 2 when P1 = 1 and p2 = 2