Question

2. Draw some indifference curves to represent the following preferences.(Please draw at least two indifference curves in one graph and specify which indifference curve has bundles that are more preferable)

   (a) [2 points] Alex likes both cake and smoothie. For both the commodity, he thinks that the more, the better. And he thinks a piece of cake is as good as a glass of smoothie.(b)Bobby likes chocolate but he doesn’t care about ice cream. And he thinks that the more chocolate he gets, the happier he is. (c) Claire likes pizza but hates fruits. The more pizza she gets, the happier she is. But eating more fruits reduces her happiness. However, when she has to eat some fruits, she would be of the same level of happiness if she is compensated with several pizzas.

Answer 1

a) In this question, both are normal goods. The marginal rate of substitution is fixed. Hence both the curves are downward sloping linear curves. The further one goes, the more is the utility. In the graph, maximum utility is obtained by curve IC3, then by IC2 and the minimum by IC1.

b) the second scenario is an example of lexicographic preference. Hence one would move up the line IC1 to obtain greater utility. This is the direction of preference.

c) c) Here one good gives positive utility and the other negative utility. Hence the indifference curves are upward sloping. As one moves more to the leftward indiffence curve, higher is the utility.