Intermediate Microeconomics: A Modern Approach, Seventh Edition

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Econ 301 – F07 ANSWERS to PROBLEM SET 2 - due in class on Thursday September 20 Wissink 1. Critically evaluate the following statements and explain why or in what way are they true, false, or uncertain. a. Over the set of people in New York State, the binary relation "is the Facebook Friend of" is complete and transitive. [ANSWER] False, the binary relation “is the Facebook Friend of” is not complete and not transitive . Completeness: For example, take Jane and Mike who both live in NY and are not Facebook Friends (FBF). So Jane is NOT Mike’s FBF and Mike is not Jane’s FBF, or both, so the relation is NOT complete. Transitivity: for example, Jane is the Facebook Friend of Mike. Mike is the Facebook Friend of Carol. To be transitive, Jane MUST BE the Facebook Friend of Carol. But, in reality, Jane may not be the Facebook Friend of Carol. b. Assuming a 2 good commodity space and an agent with well behaved preferences, the binary relation “is strictly preferred to” is complete. [ANSWER] False, the binary relation “is strictly preferred to” is not complete . Suppose Bundle A and Bundle B are indifferent to each other. Then A is not strictly preferred to B and B is not strictly preferred to A, or both, so the relation “is strictly preferred to” it not complete. c. Unlike Prof. Wissink, an indifference curve can never be “thick.” [ANSWER] True, a well behaved indifference curve can never be “thick.” A thick indifference curve violates the monotonicity assumption, which means that more is better. Suppose that (x1, y1) is a bundle of goods and (x2, y2) is a bundle of goods with strictly more of both goods x and y. By the monotonicity assumption, (x2, y2) is strictly preferred to (x1, y1). But if two bundles are on the same thick indifference curve, (x2, y2) is indifferent to (x1, y1). (x1,y1) (x2,y2) x y IC
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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. (Note, not all these individuals will have nicely behaved preference, in fact, maybe none of them do.) a. Ima Slacker loves to go shopping for “all other goods” and dislikes working. She has strictly convex preferences between “all other goods” and working. b. James Bond’s favorite drink is a Vodka Martini, shaken, not stirred. His personal perfect recipe is to always use 1 part vodka to 3 parts gin. c. Jane describes nirvana as exactly 1 piece of cheesecake with ¼ cup of raspberry sauce. d. Mikko cares about road quality in Oulu Finalnd and could care less about road quality in Ithaca New York. [ANSWER] (a) (b) Working All other goods IC0 IC1 Vodka (part) Gin (part) IC0 1 3 0 IC1 (c) (d) 2 Cheesecake (piece) Raspberry (cup) IC0 1 1/4 0 IC1 Oulu Ithaca IC0 0 IC1 IC2
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3. Al derives utility from 3 goods: music (M), wine (W), and cheese (C). His utility function is given by: u(M,W,C) = MWC a. Assuming Al's consumption of music is fixed at 10, sketch the indifference curves between W and C
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ans to problem set2 f07 - Econ 301 F07 ANSWERS to PROBLEM...

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