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b. Over the set of people in New Jersey, the binary relation "is the mother of" is complete.
False, the relation "is the mother of" is not complete over. For example suppose you and I both
come from NJ. I am not your mother and you are not my mother and we are not each other's
mothers, so, the relation is not complete.
c. If I am always willing to substitute six units of y for an additional unit of x, then my preferences
violate the monotonicity axiom.
No, they violate the STRICT CONVEXITY assumption. Cant refer to the notion of monotonicity at
all here since you are getting more of one good and less of the other.
2. Draw indifference curve maps containing at least two indifference curves for the following
descriptions of preferences and indicate the direction in which happiness is increasing.
See last page.
3. Coach Steroid likes his players to be big, fast, and obedient. If player A is better than player B in
two of these three characteristics, then Coach Steroid prefers A to B, but if B is better than A in two of
these three characteristics, then Steroid prefers B to A. Otherwise, Steroid is indifferent between them.
Wilbur Westinghouse weights 340 pounds, runs very slowly, and is fairly obedient. Harold Hotpoint
weighs 240 pounds, runs very fast, and is very disobedient. Jerry Jacuzzi weighs 150 pounds, runs at
average speed, and is extremely obedient.
a. Does Coach Steroid have transitive preferences with respect to these three guys?
Coach Steroid does not have transitive preferences, since he prefers Jerry to Wilbur even though he
prefers Wilbur to Harold and he prefers Harold to Jerry.
b. After several losing seasons, Coach Steroid decides to change his way of judging players.
According to his new preferences, Steroid prefers player A to player B if player A is better in all
three of the characteristics that Steroid values, and he prefers B to A if player B is better at all three
things. He is indifferent between players if they weigh the same, are equally fast, and are equally
obedient. In all other cases, Coach Steroid simply says the two players are not comparable. Are
Coach Steroids new preferences complete with respect to these three guys?
Coach Steroids new preferences are not complete because with these new preferences he cannot
compare Wilbur and Harold.
c. Are Coach Steroids new preferences transitive with respect to these three guys? How about over
the population of all guys who might be on the team?
Over these three guys, the coachs preferences are transitive by default. Since you can not prove
they are not transitive, then they are. But more importantly, Coach Steroids new preferences are
transitive. If there are any three players, say Jack, Ryan, and William, such that Coach Steroid
prefers Jack to Ryan and Ryan to William, under these new preferences, then it also has to be the
case that Coach Steroid prefers Jack to William.
4. Al derives utility from 3 goods: music (M), wine (W), and cheese (C). His utility function is given
by:
u(M,W,C) = M + 2W + 3C.
a. Assuming Al's consumption of music is fixed at 10, sketch the indifference curves between W and C
for u = 40 and then again for u = 70.
See last page.
b. Show that Al's MRS of wine for cheese is constant for all values of W and C on the indifference
curves calculated in part (a).
MRS = MUc/MUw = 3/2
c. Suppose Al's consumption of music increases to 20. How would this change your answers to parts
(a) and (b)?
The quantities of C and W yielding u = 40 and u = 70 would be smaller, but the new indifference
curves corresponding to u = 40 and u = 70 would have the same slope as the previous ones. The
MRS between C and W is a constant. (This situation is similar to one with only two goods and a
monotonic transformation of the utility function. The indifference curves with the original function
are still indifference curves for the transformed function; only the specific utility units attached to the
indifference curves change.)
5. Assume x is the horizontal good and y the vertical good.
u = 2x + 3y =>
MUx = 2;
MUy = 3;
MRS = 2/3
u = 4x + 6y =>
MUx = 4;
MUy = 6;
MRS = 2/3
u = ax + by =>
MUx = a;
MUy = b;
MRS = a/b
u = 2(x.5) + y =>
MUx = 1/x.5;
MUy = 1;
MRS = 1/x.5
u = ln(x) + y =>
MUx = 1/x;
MUy = 1;
MRS = 1/x
u = v(x) + y =>
MUx = v(x);
MUy = 1;
MRS = v(x)
u = xy =>
MUx = y;
MUy = x;
MRS = y/x
u = xayb =>
MUx=axa-1yb ;
MUy=bxayb-1 ;
MRS=ay/bx
u = (x+2)(y+1)=>
MUx = (y+1);
MUy = (x+2);
MRS = (y+1)/(x+2)
u = (x+a)(y+b) =>
MUx = (y+b);
MUy = (x+a);
MRS = (y+b)/(x+a)
u = xa + yb =>
MUx = axa-1;
MUy = byb-1;
MRS = (axa-1)/(byb-1)
6. For each of the following statements interpret what the statement would imply about either the
narrator's preferences and/or his utility function. That is to say, how might you represent the preferences
of the narrator vis a vis the indifference curve map or the utility function or both.
a. "It (RC Cola) is just as good as the high-priced brand (Coke)."
RC and Coke are perfect substitutes.
d. "Popcorn is addictive - the more you eat, the more you want."
The narrator has an increasing MRS between popcorn and "all other goods."
e. "Mosquitoes ruin a nice day at the beach."
Mosquitoes are a "bad."
7. Which of the following utility functions represent the same underlying preferences:
Functions a, d, and e represent the same preferences.
a. u = x2y2
d. z = 10 + 2ln(x) + 2ln(y)
.5
b. v = x y
2
e. g = 23 + xy
2
c. w = x + y
f. h = 23 - xy
8. What kind of assumption(s) on preferences and/or utility functions would rule out the following:
"bowed-out" indifference curves; crossing indifference curves; upward sloping indifference curves;
kinked indifference curves; linear indifference curves.
Convex preferences rule out bowed-out indifference curves; transitivity and monotonicity together will rule out
crossing indifference curves; monotonicity rules out upward sloping indifference curves; differentiability rules out
kinked indifference curves; strict convexity rules out linear indifference curves.
9. Four university students, Abe, Betty, Charlie and Dave have been asked to assign utility numbers to
five bundles containing various amounts of good x and good y, with more-preferred bundles getting
higher numbers (see table below). These utility numbers will help us find a representation for each
student's utility function UAbe, UBetty , UCharlie , UDave . Unfortunately, only one of the four people is a
nicely behaved economics student with nicely behaved preferences that are consistent with the standard
assumptions on consumer preferences. Which student is it? Can you suggest what is wrong with the
others?
For each person, plot the bundles and then look at the indifference curves that would be implied by the
utility numbers, noting that if the bundles receive the same utility number they are on the same
indifference curve. Abe is just fine. Betty appears to violate the notion of convex preferences. Charlie's
indifference curves cross, so his preferences either violate monotonicity or transitivity. Dave's
preferences violate the monotonicity assumption.
2a.
2b.
IC
dogs
dancing
IC
IC
1
IC
0
2
1
cleaning
2c.
2d.
books
$aog
IC
2e.
IC
IC
IC
0
mustard
4a.
beerwine
30
cassettes
Q.4a
15
IC
0
IC
10
14
coffee
pizza
20 cheese