3. Indifference curves and preferences Caroline likes both soda and ice more of

Question

3. Indifference curves and preferences Caroline likes both soda and ice more of either good, holding the consumption of the other good constant. cream. Assume that the "more is better prindiple applies to Caroline; that is, she would always prefer to consume The points on Figure 1 represent combinations of ice cream and soda that Caroline might choose to consume. Figure 2 shows the same points as Figure 1, but it also shows some of Caroline's indifference curves: I1. I2, and Is- These curves show more information about Caroline's preferences than Figure 1. Figure 1 Figure 2 ICE CREAM (Cones) ICE CREAM (Cones)

Explanation / Answer

Bundles which Caroline prefers to H are :

Figure 1 D E

Figure 2 D E

Statemant

Figure 1 indicates that Caroline is indifferent among bundles E and bundles A . False

Figure 2 indicates that Caroline prefers bundle E to bundle A. True

(Note: the points A H G F lies on the same indifference curve hence same utility and preference . Point E lies on a higher indifference curve hence higher utility and preference.)

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