Quiz 4 - b is preferred to a • The consumer is...

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Econ 302 Quiz 4 McLeod Name ____________________________ ID # ______________________________ 1. (8 points) Suppose a consumer has $900 to spend on either baseballs or baseball gloves. Suppose baseballs cost $5 each and gloves cost $25 each. Draw the budget constraint for this consumer. Please put the number of baseballs on the vertical axis. Be sure to label your graph carefully. What is the value of the marginal rate of transformation? The budget constraint is a straight line with vertical intercept at 180, and horizontal intercept at 36. The MRT = -5. 2. (6 points) List and carefully explain the three assumptions made in class about consumer preferences. Assumption 1--Completeness: A consumer can compare any two bundles of goods, a and b , and say that either a is preferred to b b is preferred to
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Unformatted text preview: b is preferred to a • The consumer is indifferent between a and b Assumption 2--Transitivity For any three bundles a, b, and c the following is true If a is preferred to b and b is preferred to c, then a is preferred to c. Assumption 3--More is better: For any two bundles, a and b, if bundle a has at least as much of all goods as bundle b and bundle a has more of some good than bundle b, then bundle a is preferred to bundle b. 3. (6 points) Sketch the graph of two indifference curves for the following situations. Indicate which indifference curve makes the consumer better off. a) Good X and good Y are perfect complements. b) The consumer only cares about how much good X she consumes. It does not matter to her how much of good Y she consumes. Good Y Good X Good Y Good X...
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