The Theory of Consumer Choice
BUZE400 Economics (Part 1)
Fall 2013
Tutorial 4: The theory of consumer choice
Question 1: Nargiza and Alibek are painting their apartment. At the paint store, Alibek says he prefers Canary Yellow to Bumblebee Yellow, Lime Yellow, and Crayola Yellow.
Nargiza …nds new paint samples and asks Alibek to compare Canary Yellow to School Bus
Yellow and to Sunrise Yellow. Alibek prefers Sunrise Yellow to Canary Yellow, and prefers
School Bus Yellow to Canary Yellow. He also prefers Sunrise Yellow to School Bus Yellow.
The store is out of Sunrise Yellow, so they buy School Bus Yellow and paint their apartment with it. Alibek then insists that they go back, buy Lime Yellow, and repaint the apartment.
So, Alibek has rational preferences (as we de…ne them).
True/False/Uncertain:?
Question 2: In each of the following examples, a consumer purchases just two goods: x and y. Based on the information in each of the following parts, sketch a plausible set of indi¤erence curves (that is, draw at least two curves on a set of labeled axes, and indicate the direction of higher utility). Also, write down a utility function u(x; y) consistent with your graph. Note that although all these preferences should be assumed to be complete and transitive (as required for utility representation), not all will be monotone.
1. Maria enjoys bagels, x; and co¤ee, y, and consuming more of one makes consuming the other more enjoyable.
2. Vitaliy loves ice cream x, but he hates mushrooms y.
3. Iroda likes chicken x, and neither likes nor dislikes turkey y.
4. Gairat always buys three white T-shirts, x; for every pair of jeans, y.
5. Anton likes both peanut butter, x; and jelly, y, and always gets the same additional satisfaction from a potion of peanut butter as he does from two portions of jelly.
1
Question 3: Assume that the consumer is has an income I and two commodities to choose from: food and clothing. Assume also, that the price of food is pC and the price of
Fall 2013
Tutorial 4: The theory of consumer choice
Question 1: Nargiza and Alibek are painting their apartment. At the paint store, Alibek says he prefers Canary Yellow to Bumblebee Yellow, Lime Yellow, and Crayola Yellow.
Nargiza …nds new paint samples and asks Alibek to compare Canary Yellow to School Bus
Yellow and to Sunrise Yellow. Alibek prefers Sunrise Yellow to Canary Yellow, and prefers
School Bus Yellow to Canary Yellow. He also prefers Sunrise Yellow to School Bus Yellow.
The store is out of Sunrise Yellow, so they buy School Bus Yellow and paint their apartment with it. Alibek then insists that they go back, buy Lime Yellow, and repaint the apartment.
So, Alibek has rational preferences (as we de…ne them).
True/False/Uncertain:?
Question 2: In each of the following examples, a consumer purchases just two goods: x and y. Based on the information in each of the following parts, sketch a plausible set of indi¤erence curves (that is, draw at least two curves on a set of labeled axes, and indicate the direction of higher utility). Also, write down a utility function u(x; y) consistent with your graph. Note that although all these preferences should be assumed to be complete and transitive (as required for utility representation), not all will be monotone.
1. Maria enjoys bagels, x; and co¤ee, y, and consuming more of one makes consuming the other more enjoyable.
2. Vitaliy loves ice cream x, but he hates mushrooms y.
3. Iroda likes chicken x, and neither likes nor dislikes turkey y.
4. Gairat always buys three white T-shirts, x; for every pair of jeans, y.
5. Anton likes both peanut butter, x; and jelly, y, and always gets the same additional satisfaction from a potion of peanut butter as he does from two portions of jelly.
1
Question 3: Assume that the consumer is has an income I and two commodities to choose from: food and clothing. Assume also, that the price of food is pC and the price of