Microeconomics Teaching Assistant: Course Coordinator: A. Banerji Problem 1: Indifference curves Draw indifference curves to illustrate individual preferences for hamburgers (y-axis) and soft drinks (x-axis) for following individuals: a) Individual A dislikes both hamburgers and soft drinks b) Individual B likes both hamburgers and soft drinks but insist consistently to consume one soft drink for every two hamburgers that she eats c) Individual C likes hamburgers, but neither likes nor dislikes soft drinks Microeconomics 2 Problem 2 Imagine this course has two midterms. The course grade is the higher of the two scores that you get on the midterms. a. You want to maximize your grade in this course. Let x1 be your score on the first midterm and x2 be the score on the second midterm. Which combination of scores would you prefer, x1 = 20 and x2 = 70 or x1 = 60 and x2 = 60? b. Draw the 2 ICs on a graph? Are these preferences convex? c. Imagine you are also taking another course. Instead of discarding the lower grade, the grading policy now discards the higher one. How will the IC look now? Are preferences convex now? 3 Problem 3: MRS Suppose that Jones and Paul have each decided to allocate their income to an entertainment budget in the form of hockey games or rock concerts. They both like hockey games and rock concerts and will choose to consume positive quantities of both goods. However, they differ substantially in their preferences for these two forms of entertainment. Jones prefers hockey games to rock concerts, while Paul prefers rock concerts to hockey games. a. How are the two sets of indifference curves different from each other? (For consistency, plot hockey games on x-axis) 4 Problem 4 Emily consumes only nuts and berries. Fortunately, she likes both goods. The consumption bundle where Emily consumes x1 units of nuts per week and x2 units of berries per week is written as (x1, x2). • The set of consumption bundles (x1, x2) such that Emily is indifferent between (x1, x2) and (1, 16) is the set of bundles such that x1 ≥ 0, x2 ≥ 0, and x2 = 20 − 4√ x1 a. Can you plot the Indifference curves? b. What is the Marginal Rate of Substitution? Is it increasing? 5 Doubt 6