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02 - Fall 2008 Econ 3130 Problem Set 2 Preferences and...

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Fall 2008 Econ 3130 Problem Set 2: Preferences and Utility This problem set must be done on graph paper. If a problem calls for two or more graphs on the same axes, use different colors. 1. Adam likes both pizza and wings. More,of course, is always better. Let ( x p , x w ) denote the consumption bundle wherein Adam consumes x p units of pizza and x w units of wings in a month. Last month he consumed the bundle (20 , 5). The set of consumption bundles ( x p , x w ) such that Adam is indifferent between ( x p , x w ) and (20 , 5) is the set of bundles such that x p = 100 /x w . (a) Plot several points that lie on the indifference curve, and sketch the curve. (b) Indicate on your graph those bundles which are better than (20 , 5) and those which are worse than (20 , 5). (c) Is (10 , 15) preferred to (20 , 5)? Prove your answer. (d) What is the marginal rate of substitution of wings for pizza at the bundle (20 , 5)? 2. Studying economics is fun. Studying field x is boring. Preferences are convex. Choose a consumption bundle, and sketch an indifference curve
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