ans03 - Exercises 2. hamburgers and soft drinks Indicate...

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Answer Key for Chapter 3 Exercises: 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 drinks. Since Joe dislikes both goods, he prefers  less   to   more,   and   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   Joe   is  indifferent, any linear combination of the two bundles will be in the preferred set, or  will leave him at least as well off. This is true of the indifference curves shown in the  diagram. 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. 1 Ham bu rgers  Soft Drin ks  Ham bu rgers   Soft Drin ks 
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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, so his satisfaction increases as we move upward and to the left. d.
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This note was uploaded on 01/04/2012 for the course ECON 101 taught by Professor Pr.makushi during the Spring '11 term at San Diego Christian.

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ans03 - Exercises 2. hamburgers and soft drinks Indicate...

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