Economics 202 Advanced Microeconomics

Problem Set #1
Consider the preferences defined over the nonnegative orthant by (x1, x2)
(y1,
y2) iff x1+x2< y1+y2. Do these preferences exhibit local nonsatiation (provide a
proof)? If these are the only two consumption goods and the consumer faces
positive prices, will the consumer spend all his income (provide a proof)? (from
Varian exercise 7.1)
Sufficient Condition for Convex Preference. Let U(x) be a utility function and let
f() be an increasing function. Show the following:
(a) If u(x) = f(U(x)) is concave, show that preferences are convex.
(b) If u is strictly concave show that preferences are strictly convex.
A consumer consumes one consumption good x and hours of leisure h. The price
of the consumption good is p and the consumer can work at wage rate of s=1.
What is the consumers Walrasian budget set (GMW, exercise 2.D.2)
Budget sets with block pricing. Suppose xR2 and that x1 is subject to block
pricing that is if x1<x* then the price charged is p1 x1>x* then the consumer is
charged a price p* >p1. x2 on the other hand is priced p2. Draw the budget set for
this scenario. What can you say about the solution to the utility maximization
problem for this case?
Consider a consumer with the following preference relations: he weakly prefers
(x1, x 2 ) (y1, y 2 )
Check if this preference relation is transitive,
monotonic, convex, and locally non-satiated.
Prove that the (strictly referred) and ~ (indifference) relation are transitive,
given that the at least as good as relation or weakly preferred relation
represent rational preferences.