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(econ324)[2001](f)midterm~masze^_10248.pdf
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Department of Economics, HKUST


ECON 324
ECONOMICS OF HUMAN BEHAVIOR


Semester: Fall 2001 Dr. S. F. Leung





Midterm Examination
November 8, 2001
3 pm C 4:30 pm



This is a closed book examination. You have 90 minutes to complete the test. Write coherently, lucidly, and legibly. Always explain your answer. The maximum score for this exam is 90 points. Points are marked next to the questions and may be served as a guide to how much time you should allocate on each question. Use mathematics and/or diagrams wherever appropriate to strengthen your answer.



1. (25)



Indicate whether each of the following statements is TRUE, FALSE, or UNCERTAIN, and explain your answer. Use any necessary mathematics or diagrams to support your answer. More credit will be given to better and more complete arguments.


(a) Stable preference means that if you have pizzas for dinner tonight, you will also have pizzas for dinner tomorrow. If you have pizzas for dinner tonight but noodles for dinner tomorrow, then your preference is not stable.


(b) The optimal foraging theory is wrong because animals and insects do not know calculus.


(c) Burning paper houses, cars, and money for the dead is an irrational behavior because it is a waste of money.


(d) Uniformly heavy punishments for all crimes will lead to a larger number of major (serious) crimes.


(e) If individuals are risk averse, then setting up more checkpoints on the roads is more effective in deterring drunk driving than increasing the punishments.


2. (7)



In Hong Kong, the punishment for speeding is more severe than the punishment for illegal parking. Can you provide three different justifications for this policy?




3. (8)



Some lecturers have expressed the concern that student cheating (e.g., plagiarizing homework, cheating in examinations) has become a significant problem in Hong Kong universities.

(a) (4) Cheating benefits some people and hurts others. Who are the gainers and the losers of cheating (students, lecturers, etc.)? Explain.

(b) (4) Is cheating socially inefficient? Discuss.




4. (18)


(a) (5) For an impulsive consumer, is his/her demand curve downward sloping? If yes, prove it. If no, why not?



(b) (8) For a large group of impulsive consumers, is the market demand curve downward sloping? If yes, prove it and calculate the price elasticity of demand as well as the income elasticity of demand. If no, why not?


(c) (5) Consider a monopoly that behaves impulsively. Suppose there is an increase in the demand of the monopoly's output. Can you show that the monopoly will tend to increase its output even though it behaves impulsively?





5. (12)



Consider Beckers model of crime. An individual has the utility function

U(W) = 1 + 250W C W2.

Let y = 100, f = 125, and p = 0.2. Suppose U(0) is the ut