Unformatted text preview: her roll of Kodak. The slope has to be less than 1 since Fuji is perceived to be better than Kodak. Thus, we can
choose any value for
such that: Here are 3 utility functions which represent this consumer’s preferences (in what sense?): Question 2
For each of the following utility models, derive and graph the indifference curve for an arbitrary utility level
“Describe” the consumer’s preferences.
(a) . √ Answer:
The Indifference curve equation is:
√
4 University of Toronto, Department of Economics, ECO 204, 2013  2014 yaxis intercept ( ) xaxis intercept ( ) Slope
√
Slope at yaxis intercept ( ) Slope at xaxis intercept ( ) From this information, you should be able to deduce that the indifference curves look like: The consumer perceives goods 1 and 2 as “imperfect substitutes” with diminishing (i.e. as   ). Along the yaxis (where
) we have
along the xaxis (where
) we have
; and at
√
any interior bundle
. Thus, it is conceivable that the consumer may choose a bundle on a boundary and/or in gthe
interior bundle of the consumption set.
(b)
Answer:
The Indifference curve equation is: 5 University of Toronto, Department of Economics, ECO 204, 2013  2014 yaxis intercept ( ) xaxis intercept ( ) Slope Slope at yaxis intercept ( ) Slope at xaxis intercept ( ) From this information, you should be able to deduce that the indifference curves look like: 
 ).
The consumer perceives goods 1 and 2 as “imperfect substitutes” with diminishing
(i.e. as
Along the yaxis (where
) we have
along the xaxis (where
) we have
; and
at any interior bundle
. Thus, the consumer may choose bundle on the
boundary and/or in the interior of
the consumption set.
(b)
Answer:
The Indifference curve equation is: 6 University of Toronto, Department of Economics, ECO 204, 2013  2014 yaxis intercept ( ) xaxis intercept ( ) Slope Slope at yaxis intercept ( ) Slope at xaxis intercept ( ) From this information, you should be able to deduce that the indifference curves look lik...
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 Winter '13
 AJAZ
 Utility, Department of Economics, FUJI

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