# MicroF00-II.1

436pages on
this wiki

## Question from Past Microeconomics Qualifying ExamEdit

Fall 2000 - Section II, Question one, George Mason University Suppose that automobile size (weight) and gasoline are inputs into the household production of transport services, $T = t(S,G)$, with $T$ increasing as $G$ increases but decreasing as $S$ increases. Suppose also that travel is a bit risky, and that the probability of an accident increases with travel, $P = p(T)$, while the damage generated falls as automobile size increases, $H = Ho - d(S)$, other things being equal. If no accidents occur damages equal zero e. g. $H = Ho$. Assume that individuals value only health, $H$, transport services, $T$, and other consumption, $C$.

• a. Characterize a typical person's (Al's) expected utility maximizing automobile size (Assume that Al has $W$ dollars to allocate between $C,S,$ and $G$ which are purchased in competitive markets). Explain the economics behind the mathematics that characterize Al's optimum.
• b. Characterize Al's demand function for automobile size.
• c. Does Al's short run demand for gasoline necessarily slope downward when Al's utility function is separable and strictly concave? Briefly explain your analysis.