1 Suppose that Andy has utility function UXY and is indiffer

1) Suppose that Andy has utility function U(X,Y) and is indifferent between the following bundles: (X=1,Y=10), (X=2,Y=6), (X=3,Y=3). The MRS of X for Y

(i) at X=1 is equal to

(ii) at X=2 is equal to

2) Suppose that transitivity and more is better properties are satisfied. Then, if Adam is indifferent between 2 apples and 4 bananas and is indifferent between 4 bananas and 1 orange, which of the following must be true (circle all that apply):

2 apples are preferred to 1 orange

3 apples are preferred to 1 orange

3 apples are preferred to 2 oranges

2 oranges are preferred to 2 apples

Solution

1) MRS = slope of indifference curve at particular point

at (x=1, y=10)

MRS = magnitude of (y2 - y1 / x2 - x1)

= 4

Consumer is willing to give up 4 units of Y for 1 unit of X as it moves from (x=1, y=10) to (x=2, y=6)

At (x=2, y=6)

MRS = 3

Consumer is willing to give up 3 units of Y for 1 unit of X as it moves from (x=2, y=6) to (x=3, y=3)

2)

if 2 apples = 4 bananas , 4 bananas = 1 orange

then from property of transitivity ( if x=y, y=z then x=z), 2 apples are preferred to 1 orange

Ans is option A