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Semester One, 2022

ECON3010 ADVANCED  MICROECONOMICS

ONLINE TEST  1

There are a total of ve (5) questions in this examination, three (3) in Section A and two (2) in Section B. Answer ALL questions in Sections A and B. Justify all answers. There is a total of 20 marks.  Each question carries the number of marks as indicated.  Partial credit may be awarded if a substantial part of the answer or working is provided.  You need not waste time explaining your notations as long as you are using the notations we have developed in class.

Section A: SHORT ANSWER QUESTIONS

Answer ALL Three Questions in This Section

Question A1 (3 marks total)

Let A, B, C be three logical statements.  Assume that A is True, B is False and C is True.  Find the truth value of the statement (A A (-B)) e (C ^ B), i.e., whether it is True or False.  In your answer, show your work by deriving the truth values of the statements (-B), A A (-B), and C ^ B . [Note that you do not have to provide full truth table.]

Question A2 (4 marks total)

Assume that Alice is the minister of health in her country. There is an infection virus affecting her country and Alice needs to choose one of the ve vaccines X = {A, B, C, D, E} to ght with the virus. Assume that the country has enough resources to buy any of the vaccines and the supply of each vaccine is enough to satisfy the demand.  Alice has ordered vaccines A and B, and does not order other vaccines. Assume that Alice is benevolent and chooses the best option for the country. Alice mentions in a press conference that  The vaccines I ordered are not inferior options among the available alternatives.” Which of the following are implied by this information?

(a) [2 marks] Alice’s preference relation on vaccines has to be complete and transitive.

(b) [2 marks] Vaccines C, or D, or E cannot be a greatest element of X  based on Alice’s

preference relation.

In your answer,  explain why the claim  in each  part above  is  implied  by or  not  implied  by the information provided.  That it, if it is implied, provide a proof of your argument, and if it is not implied, then pride an example supporting your argument.

Question A3 (3 marks total)

Let X = [0, 1].  Consider the following claim:  “For every complete binary relation on a non-empty set X, there exists a subset A of X that has a greatest element.” Is this statement true or false? If true provide a proof, if false provide a counterexample.

Section B: PROBLEM SOLVING / PROOF QUESTIONS

Answer ALL Two Questions in This Section

Question B1 (6 marks total)

Consider the following decision problem of Alice. There are two commodities, coffee and tea. Only the non-negative integer amounts of cups of coffee and tea are allowed (Alice cannot buy a fraction of a cup of coffee or tea).  Assume Alice’s objective is to choose the best alternative among cups of tea and coffee. Alice has a daily budget of $12 to spend on coffee and tea (this is the maximum price she can spend on coffee and tea), and the price of one cup of tea is $4 and the price of one cup of coffee is $4. We observe that Alice drinks 1 cups of coffee and 1 cup of tea on some days, and she consumes 2 cups of coffee and no tea on other days. Assume Alice’s preferences does not change over time and she is a rational person, she chooses (one of) the best alternative(s) in her budget set.

Construct a complete and transitive  preference  relation on Alice’s  budget set  B  =  {(c, t)  ∈ Z|4c + 4t  < 12} that is compatible with the observed choices above.   In your answer, clearly provide the binary relation on B .

Question B2 (4 marks total)

Consider the following claim.

Claim.  Let X be a nite set with at least 3 elements.  If a preference relation > is complete and the indifference relation ~ is transitive (that is, x ~ y ~ z implies x ~ z for all x, y, z ∈ X), then the strict relation ÷ is transitive (that is, x ÷ y ÷ z implies x ÷ z for all x, y, z ∈ X).

Is the claim above true or false?  If it is true, provide a proof, and if it is false, provide an example illustrating your argument.