ECO 3301
Fall 2010
Homework 2: Answer Key
The due date for this assignment is Monday, September 20 (beginning of class)
1. Since more of each good is preferred to less, we can conclude that a market basket is
preferred to an alternative basket if it lies above and to the right of the alternative
basket.
So, bundle B is preferred to all other bundles.
A is preferred to D, C is
preferred to D, but it°s not possible to rank A and C without more information.
2. Transitivity and More is Better together imply that indi/erence curves cannot cross.
If two indi/erence curves did cross, then by choosing three points, A, B, and C in the
following way. A lies on the ±rst indi/erence curve, B is the intersection point, C lies
on the second curve, and A lies to the left and below point C. It is easily shown that
the two axioms cannot both be satis±ed. A is at least as preferred as B, and B is at
least as preferred as C. By transitivity A is at least as preferred as C, contradicting
More is Better. See ±gure below.
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 Spring '10
 MananRoy
 Utility, Assumption of Mary, indi¤erence curves, UX M UY

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