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Hw1 Solution Essay

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Econ3101 - Section 006 Intermediate Microeconomics
Xavier Vinyals-Mirabent Due: Wednesday, February 1st, 2012.

Solutions to Homework 1.

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1. A consumer has preferences for two goods. Her preferences satisfy Axioms 1 through 4 as discussed in class. A v D v

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E v 5 C v

B v

0 0 5 (a) Plot and label the following bundles: A (2,10) B (6,2) C (0,4) D (8,10) E (4,6) (b) Assume A is indifferent to B (A ∼ B). On a single line, list all the bundles in descending order of preference using ( ) to denote strict preference and (∼) to denote indifference between adjacent pairs. In other words, use the form: A B C D E Answer: D E A∼B C, or D E B∼A C. 10

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2. Consider an economic agent who has preferences that are represented …show more content…

Figure 1: Jeremy Bentham 100
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Figure 2: John Stuart Mill 100 r r r 75

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6. I’ve been told I have odd tastes. I thought about this and realized that: • If I have more Y than X, then I always trade 5 Y for one X. • If I have more X than Y, then every time I give up one Y, I require 5 X to remain indifferent after the exchange.

(a) Plot and label the following bundles and then graph my indifference curves through each of these points. A = (10,50) B = (50,50) C = (65,5) (b) Please tell me the value of my: Marginal Rate of Substitution at point A =5 Marginal Rate of Substitution at point C =1/5

100 h hh h h h h hh h h hh h hh h hh h hh h hh h hh h hh h hh h hh h h hr A B r h–– ––– hh ––– ––– hh ––– – hh hh hh hh hh hh hh h– – h–– ––– ––– ––– ––– ––– ––– ––– ––– ––– C r ––– ––– ––– ––– – – –

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7. Britney S. has a divided mind. Her preferences change drastically according to how much X and

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