Question

1. True or False? Explain! a. If S and F are perfect complements you must be indifferent between these two bundles: (i) 1 unit of S and 1 unit of F; and (ii) 2 units of S and 1 unit of F b. A consumer enjoys both the coffee and eggs for breakfast. She is indifferent between bundle A (3 eggs and 1 cup of coffee and bundle B (1 egg and 3 cups of coffee). Given a third bundle C consisting of 2 eggs and 2 cups of coffee, we would ordinarily expect her to prefer the third bundle to either 1 or 2.

Answer 1

A) This is true;

If S and F are perfect complements then both S and F can be consumed with each other. Increasing quantity of one of S or F will not increase the utility of the consumer because until there's an increase in both of S and F , his utility will not increase as the two can be consumed only together. Hence the bundle (1,1) amd (2,1) are indifferent to each other. The utility will not increase.

Us

B) This statement is also true.

As shown in the above diagram, bundle (2,2) will lie on a higher Indifference curve than bundle A or B. Ordinarily, we take Averages to be better than extremes. Here average of (3,1) and (1,3) is (2,2) { 0.5(3)+0.5(1) = 2 , same can be done for y coordinate} . Hence (2,2) will be preferred to A or B.

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