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ECS2601
MICROECONOMICS
2020
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SUGGESTED SOLUTIONS FOR MAY/JUNE 2015
QUESTION 1
1a. Consider the following baskets of goods:
FOOD CLOTHING
A 8 3
B 6 6
C 3 8
If preferences satisfy all requirements, is A preferred to C or C to A? Explain your answer.
Basket A has more food than basket C.
Basket C has more clothing than basket A.
Therefore, basket A and C cannot be compared without additional information.
1b. An island economy produces only two goods – coconuts and pineapples. There are five
people (A, B, C, D and E) living on the island, with these preferences:
A has a strong preference for
pineapples. B has a strong preference
for coconuts.
C doesn’t care for pineapples (assigns no value to
them). D doesn’t care for coconuts (assigns no value to
them).
E will only consume pineapples and coconuts in the fixed proportion of one pineapple to one
coconut.
For each of these five individuals, construct a representative indifference curve
with pineapples on the horizontal axis and coconuts on the vertical axis.
Person A:
Coconuts
A
Pineapples
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Person B:
Coconuts
B
Pineapples
Person C:
Coconut
C
Pineapple
Person D:
Coconut
D
Pineapple
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Mgwebs
www.stuvia.co.za
Downloaded by: Mgwebs |
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, Stuvia.com - The study-notes marketplace
ECS2601
MICROECONOMICS
2020
Downloaded by: Mgwebs |
Distribution of this document is illegal
, Stuvia.com - The study-notes marketplace
SUGGESTED SOLUTIONS FOR MAY/JUNE 2015
QUESTION 1
1a. Consider the following baskets of goods:
FOOD CLOTHING
A 8 3
B 6 6
C 3 8
If preferences satisfy all requirements, is A preferred to C or C to A? Explain your answer.
Basket A has more food than basket C.
Basket C has more clothing than basket A.
Therefore, basket A and C cannot be compared without additional information.
1b. An island economy produces only two goods – coconuts and pineapples. There are five
people (A, B, C, D and E) living on the island, with these preferences:
A has a strong preference for
pineapples. B has a strong preference
for coconuts.
C doesn’t care for pineapples (assigns no value to
them). D doesn’t care for coconuts (assigns no value to
them).
E will only consume pineapples and coconuts in the fixed proportion of one pineapple to one
coconut.
For each of these five individuals, construct a representative indifference curve
with pineapples on the horizontal axis and coconuts on the vertical axis.
Person A:
Coconuts
A
Pineapples
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Person B:
Coconuts
B
Pineapples
Person C:
Coconut
C
Pineapple
Person D:
Coconut
D
Pineapple
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