Question 1

Complete tastes are tastes that make people desire at least some of every good.

Accepted Answer

A) True 
 B)False  False

Question 2

Explain the following statement: Individuals with different tastes might have the same tastes at the margin at their current consumption bundles.

Accepted Answer

By different tastes, we mean different maps of indifference curves. So, to say that individuals have different tastes is the same as saying that different individuals have different indifference maps. But it may well be the case that individuals have chosen bundles at which their marginal rates of substitution are the same --- which implies that their tastes are the same at the margin even though they differ overall.

Question 3

When the price of beer goes up, our model of tastes would typically require tastes to change.

Accepted Answer

A) True 
 B)False  False

Question 4

Two rationality assumptions economists make about tastes are first, that some individuals are not able to compare any two bundles of goods to one another, and second, that there is an internal consistency to tastes that makes it possible to choose a "best" bundle.

Accepted Answer

A) True 
 B)False

Question 5

Explain the following statement: For the same individual, tastes over goods may vary at the margin as we move from one bundle to another.

Accepted Answer

At the margin, tastes are characterized

Question 6

Suppose tastes are NOT monotonic anywhere.Then diminishing MRS is not consistent with convexity of tastes.

Accepted Answer

A) True 
 B)False

Question 7

Consider a worker who dislikes working end enjoys consuming a composite good.With labor hours on the horizontal and the composite consumption good on the vertical axis, which of the following statements are true.

Accepted Answer

A) If the worker's tastes are convex, the slope of indifference curves increases as we move to the right in the graph. 
B) The worker becomes better off as we move to the northwest in the graph. 
C) A tax on wage income does not change this worker's indifference map. 
D) All of the above. 
E) None of the above. 
A) If the worker's tastes are convex, the slope of indifference curves increases as we move to the right in the graph. 
B) The worker becomes better off as we move to the northwest in the graph. 
C) A tax on wage income does not change this worker's indifference map. 
D) All of the above. 
E) None of the above.

Question 8

You like bundle A better than bundle B, and bundle C is an average of bundles A and B.Which of the following is correct if your tastes satisfy our usual assumptions?

Accepted Answer

A) Bundle C is at least as good as bundle B. 
B) Bundle A is at least as good as bundle C. 
C) Both (a) and (b). 
D) None of the above. 
E) There is not enough information to tell. 
A) Bundle C is at least as good as bundle B. 
B) Bundle A is at least as good as bundle C. 
C) Both (a) and (b). 
D) None of the above. 
E) There is not enough information to tell.

Question 9

Prove formally that the rationality axioms alone rule out the possibility of indifference curves crossing.

Accepted Answer

Suppose A is strictly preferred to B and

Question 10

The number of units of the good on the horizontal axis that we are willing to give up to get one more unit of the good on the vertical axis is equal to the absolute value of the slope of the indifference curve.

Accepted Answer

A) True 
 B)False

Question 11

If you observe me choosing bundle A over bundle B on Monday, bundle B over bundle C on Tuesday and bundle C over bundle A on Wednesday, it must be that my tastes violate transitivity.

Accepted Answer

A) True 
 B)False

Question 12

Consider the utility function   .(Explain all your answers.) 
a.Derive the function for the marginal rate of substitution.
b.Do the tastes represented by this utility function satisfy diminishing MRS?
c.The marginal utility of a good is defined as the change in utility from additional consumption of that good (holding all else constant).Derive the marginal utility of   and   . 
d.Why does an ordinal approach to utility theory not any attention to what you derived in (c)?
e.Why does an ordinal approach to utility not treat the marginal rate of substitution the way it treats the marginal utility concept?

Accepted Answer

a. @#IMG-DLM& b. Holding @#IMG-DLM& fixed, our MRS function

Question 13

Bundle A is worse than bundle B, and bundle C is an average of bundles A and B.Then our usual assumptions about tastes imply that bundle B is at least as good as bundle C.

Accepted Answer

A) True 
 B)False

Question 14

Suppose bundle A is better than bundle B for a consumer, and bundle C is an average of bundles A and B.
a.Use the continuity, convexity and monotonicity assumptions to formally prove that this implies that bundle C is better than bundle B.
b.Did you also -- implicitly or explicitly -- use the rationality axioms?

Accepted Answer

a. Start with bundle A and imagine slowl

Question 15

Economists define "rational" tastes as those which are objective and transitive.​

Accepted Answer

A) True 
 B)False

Question 16

If the marginal rate of substitution is not diminishing, it must mean that tastes violate convexity (assuming that our other assumptions about tastes hold).

Accepted Answer

A) True 
 B)False

Question 17

You like bundle A better than bundle B, and bundle C is an average between A and B.If your tastes satisfy convexity, then C is at least as good as A and as B.

Accepted Answer

A) True 
 B)False

Exam 4: Tastes and Indifference Curves

Complete tastes are tastes that make people desire at least some of every good.

Explain the following statement: Individuals with different tastes might have the same tastes at the margin at their current consumption bundles.

When the price of beer goes up, our model of tastes would typically require tastes to change.

Two rationality assumptions economists make about tastes are first, that some individuals are not able to compare any two bundles of goods to one another, and second, that there is an internal consistency to tastes that makes it possible to choose a "best" bundle.

Explain the following statement: For the same individual, tastes over goods may vary at the margin as we move from one bundle to another.

Suppose tastes are NOT monotonic anywhere.Then diminishing MRS is not consistent with convexity of tastes.

Consider a worker who dislikes working end enjoys consuming a composite good.With labor hours on the horizontal and the composite consumption good on the vertical axis, which of the following statements are true.

You like bundle A better than bundle B, and bundle C is an average of bundles A and B.Which of the following is correct if your tastes satisfy our usual assumptions?

Prove formally that the rationality axioms alone rule out the possibility of indifference curves crossing.

The number of units of the good on the horizontal axis that we are willing to give up to get one more unit of the good on the vertical axis is equal to the absolute value of the slope of the indifference curve.

If you observe me choosing bundle A over bundle B on Monday, bundle B over bundle C on Tuesday and bundle C over bundle A on Wednesday, it must be that my tastes violate transitivity.

Bundle A is worse than bundle B, and bundle C is an average of bundles A and B.Then our usual assumptions about tastes imply that bundle B is at least as good as bundle C.

Economists define "rational" tastes as those which are objective and transitive.​

If the marginal rate of substitution is not diminishing, it must mean that tastes violate convexity (assuming that our other assumptions about tastes hold).

You like bundle A better than bundle B, and bundle C is an average between A and B.If your tastes satisfy convexity, then C is at least as good as A and as B.

Introduction

A Consumers Economic Circumstances

Economic Circumstances in Labor and Financial Markets

Different Types of Tastes

Doing the Best We Can

Income and Substitution Effects in Consumer Goods Markets

Wealth and Substitution Effects in Labor and Capital Markets

Demand for Goods and Supply of Labor and Capital

Consumer Surplus and Deadweight Loss

One Input and One Output: a Short-Run Producer Model

Production With Multiple Inputs

Production Decisions in the Short and Long Run

Competitive Market Equilibrium

The Invisible Hand and the First Welfare Theorem

General Equilibrium

Choice and Markets in the Presence of Risk

Elasticities, Price-Distorting Policies, and Non-Price Rationing

Distortionary Taxes and Subsidies

Prices and Distortions Across Markets

Externalities in Competitive Markets

Asymmetric Information in Competitive Markets

Monopoly

Strategic Thinking and Game Theory

Oligopoly

Product Differentiation and Innovation in Markets

Public Goods

Governments and Politics

What Is Good Challenges From Psychology and Philosophy

Filters

Economists define "rational" tastes as those which are objective and transitive.