5) If two goods are both desirable and preferences are convex, then a. there mus

Question

5) If two goods are both desirable and preferences are convex, then a. there must be a kink in the indifference curves. b. indifference curves must be straight lines. c. if two bundles are indifferent, then an average of the two bundles is worse than either one. d. the marginal rate of substitution is not constant along indifference curves. e. None of the above. 6) Charlie's indifference curves have the equation BC/A where larger constant c denote better indifference curves. Charlie strictly prefers the bundle (10, 17) to a. the bundle (11, 16) b. the bundle (17, 10) c. the bundle (11, 15) d. more than one of these bundles. e. none of these bundles 7) Mary's utility function is U(, y) 25xy. She has 12 units of good x and 8 units of good y. Ben's utility function for the same two goods is U(x, y)-4r +4y. Ben has 9 units of x and 13 units of y a. Mary prefers Ben's bundle to her own bundle, but Ben prefers his own bundle to Mary's. b. Ben prefers Mary's bundle to his own, but Mary prefers her own bundle to Ben's. c. Each prefers the other's bundle to his/her own d. Neither prefers the other's bundle to his/her own e. Since they have different preferences, there is not enough information to determine who envies whom. 8) Martha has preferences represented by the utility function U(x,y) = 10x + 5y. She consumes 10 units of good x and 9 units of good y. If her consumption of good x is lowered to 1, how many units of y must she have in order to be exactly as well off as before? a. 20 b. 30 c. 27 d. 18 e. None of the above.

Explanation / Answer

Question 5

The answer is Option E "None of the above".

Question 6

The answer is Option A "the bundle (11, 16)".

xb = c/ xa

xb * xa = c ( larger constant 'c' denotes better indifference curve)

This means higher value of 'c' , higher indifference curve and to calculate the value of 'c' , we have to multiply the values in the given bundle which is greater than the value of the bundle (10, 17).

As my observation, "the bundle (11, 16)" has greater value than above.

Question 7

The answer is Option E "They have different preferences, there is not enough...".

Mary's utility function = 25xy (She has 12 units of good x and 8 units of good y)

Mary's utility = 25*12*8 = 2400

Ben's utility function = 4x + 4y (He has 9 units of good x and 13 units of good y)

Ben's utility = 4*9 + 4*13 = 88

As the both utility compared, it is clear that there is a huge difference. This difference shows that they both use goods differently or have different prefrences.

Question 8

The answer is Option C "27".

Martha's utility function = 10x + 5y (She has 10 units of good x and 9 units of good y)

Martha's utility = 10*10 + 5*9 = 145

Now, Martha consumption of goods x is lowerd to 1 and her utility is same as given in the question.

Martha's utility function = 10x + 5y

145 = 10x + 5y

145 = 10*1 + 5y

145 - 10 = 5y

135 = 5y

y = 135/5 = 27

Units of good y = 27 units.

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