Week 2 Tutorial Questions 3 - Tutorial Questions Week 2...

Tutorial Questions Week 2 beginning 7
th
March
Question 4 has been moved to Week 3 tute
1. Carefully (be accurate) plot the following bundles in the (x,y) plane. A=(5,12), B=(15,8),
C=(10,10), D=(13,12), E=(5,9). We know that this individual ’ s preferences are rational,
and we know that this individual is indifferent between bundles A and B.
a. Does the consumer prefer bundle A or E? C or D? E or B? C or B? B or D?
In each case, briefly explain why. List any preference assumptions that you
used for each case.
b. Write down this individual’s com plete preference ranking over all the bundles
A-E. List any preference assumptions that you used.
2. Draw indifference maps to represent preferences over the two commodities, x and y , in the
following cases and comment on the MRSxy for each case:
i) x = noise, y = money.
ii) x = noise, y = air pollution.
iii) x = 500g pack of sugar, y = 250g pack of sugar.
iv) Sofia will consume pancakes (x) only with whipped cream (y).
3. Sometimes it makes sense to think about commodities that are goods up to a certain point,