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Questions › DSE › DSE 2020 › Q13
4 marks, −1Microeconomics › Consumer preferences and utility › Utility functions and monotonic transformationsModerateabout 3 min

DSE 2020 Question 13: Consumer preferences and utility

A consumer lives for periods 111 and 222 with lifetime utility U(c1,c2)=c1γ+c2γγU(c_1,c_2)=\dfrac{c_1^{\gamma}+c_2^{\gamma}}{\gamma}U(c1​,c2​)=γc1γ​+c2γ​​, where 0<γ<10<\gamma<10<γ<1 and cic_ici​ is consumption in period iii. The elasticity of substitution between period-111 and period-222 consumption is

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A consumer lives for periods 1 and 2 with lifetime utility U(c₁,c₂)=(c₁^γ+c₂^γ)/γ, where 0<γ<1 and cᵢ is consumption in period i. The elasticity of substitution between period- 1 and period- 2 consumption is (A) 1+γ (B) 1-γ (C) 1/(1+γ) (D) 1/(1-γ)

Also written as: A consumer lives for periods 1 and 2 with lifetime utility U(c_1,c_2)=(c_1^(gamma)+c_2^(gamma))/gamma, where 0<gamma<1 and c_i is consumption in period i. The elasticity of substitution between period- 1 and period- 2 consumption is

Consumer preferences and utility has come up 93 times in 7 exams since 2007.

What this question tests

This question is on Utility functions and monotonic transformations, part of Consumer preferences and utility in Microeconomics.

How ordinal utility represents preferences, and why any monotonic transformation of a utility function represents the same ones.

TestStop has 10 past-paper questions on this subtopic.

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