1)

 
 
 
 
⎧ x1 = w1 + X1 ,
⎪
a) max u(x1 , x2 ) + aX2 : ⎨ x2 + X2 = w2 ,
⎪ X = f (X );
⎩ 1 2

b) Consumption Function: C = c0 y + c1 (m s − p) 1 > c0 > c1 > 0

IS: y = c0 y + c1 (m s − p) − ei
LM i = (ky − m s + p) / j
IS=LM y = (c0 − ek / j)y + (c1 + e / j)(m s − p)

⎡ ûi,1û j,1 0 … 0 ⎤
⎢ ⎥
⎢ 0 ûi,2û j,2 … 0 ⎥
c) Ω̂ij = ⎢ ⎥
T ×T
⎢    ⎥
⎢ 0 0 … ûi,T û jT ⎥
⎣ ⎦
d) ln(Qi ) = 1.134 + 0.428 ln(attdi ) + 0.413ln(hrssti ) + 1.03Aleveli − 0.031M i + 0.020D1ii + 0.014D2i + ûi
(0.834) (0.193) (0.195) (0.432) (0.012) (0.004) (0.006)
where:
attd = Attendence at classes
hrsst = Number of hours of study
Alevel = Number of points in A-level exams
M = 1 if males, 0 otherwise
D1 = 1 if Management degree, 0 otherwise
D3 = 1 if Accounting, 0 otherwise
e) At − Fith = φi + λth + ε ith (1)
h
λth = ∑ utj (2)
j =1

 
 
 
 
 
  

 
 
2)  
 
 
  of  y  
Quantity  
 
 
  As  the  price  of  x  falls..  
 
 
 
 
 
 
 
 
 
  U3  
 
 
U2  
 
  U1  
  Quantity  of  x  
 
  X1   X2   X3  
  I  =  PX’’’+  PY  
 
 
I  =  PX’+  PY   I  =  PX’’+  PY  
 
 
 
PX    
 
 
…quantity  of  x  
 
demanded  rises.  
PX  ’  
 
 
 
PX  ’’  
 
PX  ’’’  
 
 
 
 
  X  

X’   X’’   X’’’   Quantity  of  X