Spring 2007 - Famulari's Class - Exam 1 (Version A)

# Spring 2007 - Famulari's Class - Exam 1 (Version A) -...

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Microeconomics, ECO 100A, Spring 2007, Dr. Famulari Midterm 1A: 250 points total Question 1: Preferences (30 points total) 1A. (15 points) Suppose you ask a consumer to rank order three commodity bundles: A, B, and C. She tells you that C A, A B and B C. Are her preferences rational? Explain your answer carefully. If her preferences are not rational, then what axiom do her preferences violate? No. If she likes C better than A and A better than B then, by transitivity, she should like C better than B. Since she says she prefers B to C, she violates transitivity. 1B. (15 points) X Y Bundle A 7 6 Bundle B 8 5 Bundle C 6 7 Suppose you ask a consumer to rank order the above three commodity bundles: A, B, and C. She tells you that B A, A C and B C. Are her preferences rational? Explain your answer carefully. If her preferences are not rational, then what axiom do her preferences violate? Yes. Her preferences are rational. Preferences are complete, since preferences are given for all pairs of bundles, and preferences are transitive, since B A, A C, and B C. Note: Y is a bad for this consumer and X is a good. Question 2: Indifference Curves (30 points total) 2A. (15 points) One property of indifference curves is that they can not cross. Using two indifference curves, carefully explain and illustrate the preference axiom that is violated if indifference curves cross. Y

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## This note was uploaded on 04/23/2008 for the course ECON 100A taught by Professor Staff during the Spring '08 term at UCSD.

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Spring 2007 - Famulari's Class - Exam 1 (Version A) -...

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