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Unformatted text preview: Ch 3 (page 104) 2. Draw indifference curves that represent the following individuals’
preferences for hamburgers and soft drinks. Indicate the direction in which
the individuals’ satisfaction (or utility) is increasing. a. Joe has convex preferences and dislikes both hamburgers and soft
Since Joe dislikes both goods, his set of indifference curves will be
bowed inwards towards the origin instead of outwards, as in the
normal case where more is preferred to less. Given he dislikes both
goods, his satisfaction is increasing in the direction of the origin.
Convexity of preferences implies his indifference curves will have the
normal shape in that they are bowed towards the direction of
increasing satisfaction. Convexity also implies that given any two
bundles between which the consumer is indifferent, the “average” of
the two bundles will be in the preferred set, or will leave him at least as well off.
hamb urg er
soﬁ dr in k
b. Jane loves hamburgers and dislikes soft drinks. If she is served a soft drink, she will pour it down the drain rather than drink it. Since Jane can freely dispose of the soft drink if it is given to her, she
considers it to be a neutral good. This means she does not care
about soft drinks one way or the other. With hamburgers on the
vertical axis, her indifference curves are horizontal lines. Her
satisfaction increases in the upward direction. hamb urg er soft drink c. Bob loves hamburgers and dislikes soft drinks. If he is served a soft drink, he will drink it to be polite. Since Bob will drink the soft drink in order to be polite, it can be
thought of as a “bad”. When served another soft drink, he will
require more hamburgers at the same time in order to keep his
satisfaction constant. More soft drinks without more hamburgers will
worsen his utility. More hamburgers and fewer soft drinks will
increase his utility. hamb urg er '\ soft drink Molly loves hamburgers and soft drinks, but insists on consuming
exactly one soft drink for every two hamburgers that she eats.
Molly wants to consume the two goods in a ﬁxed proportion so her
indifference curves are L—shaped. For any given amount of one good,
she gets no extra satisfaction from having more of the other good.
She will only increase her satisfaction if she has more of both goods. hamb urg er E soft drink Bill likes hamburgers, but neither likes nor dislikes soft drinks.
Like Jane, Bill considers soft drinks to be a neutral good. Since he
does not care about soft drinks one way or the other we can assume
that no matter how many he has, his utility will be the same. His
level of satisfaction depends entirely on how many hamburgers he
has. hamb urg er T soft drink Mary always gets twice as much satisfaction from an extra hamburger as
she does from an extra soft drink. How much extra satisfaction Mary gains from an extra hamburger or soft drink tells us something about the marginal utilities of the two goods, or about her MRS. If she always receives twice the satisfaction from an extra hamburger then her marginal utility from consuming an extra hamburger is twice her marginal utility from consuming an extra soft drink. Her MRS, with hamburgers on the vertical axis, is
1/2. Her indifference curves are straight lines with a slope of 1/2. hamb urg er / soft drink ...
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- Fall '07