EC Official Mark Schemes + 2010, Hand Written Solutions

A strictly preferred to C I2
(nonsatiation) x2
.B
A and B indifferent .A
I1
C
B and C indifferent,

so A and C indifferent (transitivity)
0 x1
Contradiction.




Figure 1: Question 1, figure 1


SECTION A: Answer EIGHT questions (6 marks each)
The short questions are each worth 6% of the total
mark on the exam. However the mark scheme gives 10
marks on each question. The scaled marks will be on
the spread sheet.
1 (a) What is the transitivity assumptions in consumer theory?
A, B and C are bundles of goods. Transitivity: if A is preferred to
B and B to C then A is preferred to C.
2 marks
(b) Assume that nonsatiation and transitivity hold. Can indierence
curves cross? Explain your answer using a diagram.
4 marks,
right answer (no) with no explanation or diagram gets 1
mark
No, see figure 1.
(c) Assume that nonsatiation and transitivity hold. Is it possible that
there are two dierent indierence curves giving the same level of
utility? Explain your answer using a diagram.
No, see figure 2.
4 marks,
right answer (no) with no explanation or diagram gets 1
mark




1