ECON 310 – Spring 2007. Chapter 3 – “Consumer Preferences and the Concept of Utility.” “Review Questions” (pages 92-93): 1, 2, 3, 5, 6, 7, 9, 10, and 11. “Problems” (pages 93-95): 3.3, 3.4, 3.6, 3.7, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.18, and 3.20. Additional Questions: 1) Gordon likes consuming =1x (books) and =2x (CDs). Three of his indifference curves are illustrated below. Answer the following based upon this graph. i. Do his preferences appear to be “monotonic”? Explain. ii. Do his preferences appear to be “convex”? Explain. iii. Does he view these goods to be “perfect substitutes” for each other? Explain. iv. Does he view these goods to be “perfect complements” to each other? Explain. v. Could 212)( xxXu = be his utility function? Explain why or why not. 2) Illustrate the indifference curves along which 20=u , 40=u , and 80=u for an individual with 212)( xxXu =. Redo this exercise, instead considering 214)( xxXu = , 214)( xxXu = , 21)( xxXu+=, 2152)( xxXu+=, {}21,min)( xxXu = , {}2211,4min)( xxXu=, and finally 2120)( xxXu += . 2x 1x 42 21 12 0 03) Consider an individual with preferences which can be described by the utility function 21)( xxXu = . For this person 21xMU= and12xMU=. i. Are the preferences of this person monotonic? Explain. ii. Determine 2,1MRS . iii. Sketch the indifference curve that )8,5(),(21=xx lies on. iv. Sketch the indifference curve that )25,2(),(21=xx lies on. v. Do these preferences appear to be convex? 4) Explain what it means for preferences to be “complete.” Explain what it means for preferences to be “transitive.” 5) Clearly explain the difference between a “cardinal ranking” and an “ordinal ranking.” Within your explanation, provide an example of each type of
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