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Unformatted text preview: Microeconomics ECON 100A Problem Set 2 Due October 6, 2010 (Solutions Posted October 8, 2010) 1. True or False. Give a heuristic proof if true, counterexamples if not. a. Non-satiation implies that a consumer always prefers one more slice of apple pie. b. Pam loves pizza, but it must have mushrooms. Between any two pizzas with (or without) mushrooms, she cares of course about the amount of cheese, the more the better. But she prefers a pizza with more mushrooms over any pizza with fewer mushrooms regardless of the amount of cheese . These preferences satisfy the four (critical) axioms of preference theory. 2. A consumer is asked to rank order the commodity bundles below: X 1 X 2 Bundle A 9 3 Bundle B 25 1 Bundle C 4 2 a. For an economist to represent the consumer’s preferences with a utility function, what conditions MUST hold? b. The consumer says that A>B, B~C, and C<A. On a graph below, illustrate this preference information using indifference curves. Be sure to label your axis and indicate the three bundles on your graph 3. Which of the following functions do NOT represent the same preferences as u(x,z)= xz ?...
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This note was uploaded on 11/30/2011 for the course ECON 311 taught by Professor Zambrano during the Fall '08 term at Cal Poly.
- Fall '08