201Spring2011HW2

# 201Spring2011HW2 - Problem Set 2 Due on Monday May 16th...

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Problem Set 2. Due on Monday, May 16 th , 2011. University of Waterloo, Microeconomic Theory 201, Spring 2011. Question 1. Ying°s preferences satisfy the following indi/erence relations and strict pref- erence relations: (2 oranges, 1 apple) ° (2 orange, 0 apples) (2 oranges, 0 apples) ± (0 oranges, 2 apples) (0 oranges, 2 apples) ° (1 orange, 1 apple) (1 orange, 1 apple) ° (1 orange, 0 apples) (1 orange, 0 apples) ± (0 oranges, 1 apple) (0 oranges, 1 apple) ° (0 oranges, 0 apples) Ying°s preferences are also transitive, complete and re±exive. a) In a carefully labeled diagram, depict a set of possible indi/erence curves for Ying that go through the following points: (0 oranges, 1 apple) (1 orange, 0 apples) (1 orange, 1 apple) (0 oranges, 2 apples) (2 oranges, 0 apples) b) Do Ying°s preferences exhibit diminishing marginal rate of substitution between apples and oranges? Explain. c) If the price of an orange is \$1 and the price of an apple is \$1 might Ying ever buy 2 oranges and 0 apples? Explain.

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