1.5 Preferences II: MRS and Utility Functions - Practice Problems

1

For each question, draw an indifference curve relating the two objects (label it I1). Draw and label a second curve that gives higher utility (label it I2), and a third curve that gives lower utility (label it I0).

a.

Oranges (a good) on the horizontal axis and Pollution (a bad) on the vertical axis.

b.

Pollution (a bad) on the horizontal axis and Soda (a good) on the vertical axis.

c.

Pollution (a bad) on the horizontal axis and Garbage (a bad) on the vertical axis.

d.

Butter on the horizontal axis and Margarine on the vertical axis. Both are goods, and you are always willing to trade between them at a 1:1 rate.

e.

Cars on the horizontal axis and Tires on the vertical axis. Both are goods, and you are always want to consume them at a 1:4 proportion. (Draw these carefully!)

2

Suppose you can watch movies in the theater (t) and streaming at home (s), and earn utility according to the utility function:

u(t,s)=4ts

Where your marginal utilities are: MUt=4sMUs=4t

a.

Put t on the horizontal axis and s on the vertical axis. Write an equation for MRSt,s

b.

Would bundles of (2,2) and (1,4) be on the same indifference curve?

c.

Is this curve convex? Hint: Does MRSt,s↓ as t↑?

d.

Sketch this indifference curve.