Introduction to Microeconomics – L1 EG – University of Orleans
Questions. Indicate the correct answer(s) and justify your choice
a-The moving from a point to another on the same indifference curve corresponds to a change of: the level of satisfaction / the combination of goods / the quantity of money.
b-The two points of question a) are characterized by the same: income / level of satisfaction / combination of items.
c-Two indifference curves cannot cross since: this would make the analysis too complicated / the intersection point would represent two different consumption bundles / the intersection point would represent two different levels of satisfaction / the intersection point would represent two different levels of revenue.
d-The points lying on the budget line are characterized by: the same combination of goods /the same level of satisfaction /the same quantity of money.
e-The position and the shape of an indifference curve depend on: consumer’s preferences and income / the prices of the two goods only / prices, preferences and income /preferences only.
f-The marginal rate of substitution at each point along an indifference curve is equal to: the ratio between the quantities of the two goods / the ratio between the marginal utilities / the ration between the weighted marginal utilities / the slope of the tangent line to the indifference curve, in absolute value / the rate of exchange between the two goods such that the consumer wants to stay put at that point.
g-At the optimal choice, the marginal rate of substitution is equal to: the ratio between the quantities of the two goods / the ratio between the marginal utilities / the ratio between the weighted marginal utilities / the slope of the tangent line to the indifference curve, in absolute value / the price ratio / 1 since the MRS is decreasing along the indifference curve and it is maximal at the optimal choice.
h-At the optimal choice: the marginal utilities of the two goods are equal / the prices of the two goods are the same / the marginal utility of revenue is zero because, even if income increases, the consumer will not change his choice which corresponds to the highest satisfaction / the rate of exchange is such that he is willing to stay put.
Exercise 1. An agent is asked to group the different consumption bundles that give him the same level of satisfaction. These bundles are reported here below
Bundle / Number of units of good X / Number of units of good Y / Bundle / Number of units of good X / Number of units of good Y / Bundle / Number of units of good X / Number of units of good YA / 1 / 8 / H / 5 / 6 / O / 15 / 3
B / 1 / 16 / I / 7 / 8 / P / 15 / 6
C / 2 / 5 / J / 8 / 1 / Q / 15 / 8
D / 2 / 20 / K / 8 / 16 / R / 19 / 7
E / 3 / 10 / L / 11 / 9 / S / 20 / 4
F / 4 / 2 / M / 12 / 2 / T / 25 / 0
G / 4 / 12 / N / 12 / 14
His answer is:
class n°1 = {S,P,K,L} class n°2 = {F,C,A,J} class n°3 = {N,Q,R} class n°4 = {D,I,G,O}, class n°5 = {H,E,B,M,T}
Questions:
a-Rank the five indifference classes.
b-Represent the consumption bundles and draw the indifference curves in the next page graphic (Please print some copies of this graphic and keep them for future tutorials).
c-Compute the rate of substitution between X and Y, for the couple of bundles O and T.
d-Compute the rate of substitution between X and Y, at points I, D, G,O. Comment.
e-Suppose that consumer’s revenue is 30 euros, the prices of X and Y are equal to 5 euros. Which bundle will be chosen by the consumer? Answer this question by using two different methods.
Exercise 2. Suppose that the consumer’s utility function associated to the x-y couples of goods is:
; with a>0 and b>0.
Write the expression of the MRS down and check if it is decreasing.
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