,ECS2601 Assignment 1 (COMPLETE ANSWERS) Semester 1
2025 (655050) - DUE 2 April 2025; 100% TRUSTED Complete,
trusted solutions and explanations. For assistance,
Question 1: (15 marks)
1.1 In microeconomics we need to make certain assumptions
about the preferences of consumers. Use real life examples to
explain any two of these assumptions. (4)
In microeconomics, consumer preferences are based on specific
assumptions that help explain how individuals make choices. Here are
three key assumptions with real-life examples:
1. Completeness (Well-Defined Preferences)
o Consumers can compare and rank different bundles of goods.
Given two options, a consumer either prefers one over the
other or is indifferent.
o Example: If Sarah is choosing between an iPhone and a
Samsung smartphone, she can determine whether she prefers
the iPhone, the Samsung, or is indifferent between them.
, 2. Transitivity (Logical Consistency in Preferences)
o If a consumer prefers good A over good B and prefers good
B over good C, then they should also prefer good A over
good C.
o Example: If John prefers Coca-Cola over Pepsi and Pepsi
over Fanta, then logically, he should also prefer Coca-Cola
over Fanta. This ensures consistency in decision-making.
3. Non-Satiation (More is Better than Less)
o Consumers always prefer more of a good to less, assuming
no negative effects from consumption.
o Example: A coffee lover, Lisa, would always prefer having
two cups of coffee instead of one if both are free, as more
coffee gives her greater satisfaction.
These assumptions help economists understand consumer behavior and
predict market demand patterns.
1.2 Critically evaluate why the marginal rate of substitution
between two goods must equal the ratio of the price of the
goods, for the consumer to achieve maximum satisfaction. (3)
The marginal rate of substitution (MRS) represents the rate at which a
consumer is willing to substitute one good for another while maintaining
the same level of satisfaction (utility). For a consumer to achieve
maximum satisfaction, the MRS must equal the ratio of the prices of
the two goods.
This can be explained through the following points:
2025 (655050) - DUE 2 April 2025; 100% TRUSTED Complete,
trusted solutions and explanations. For assistance,
Question 1: (15 marks)
1.1 In microeconomics we need to make certain assumptions
about the preferences of consumers. Use real life examples to
explain any two of these assumptions. (4)
In microeconomics, consumer preferences are based on specific
assumptions that help explain how individuals make choices. Here are
three key assumptions with real-life examples:
1. Completeness (Well-Defined Preferences)
o Consumers can compare and rank different bundles of goods.
Given two options, a consumer either prefers one over the
other or is indifferent.
o Example: If Sarah is choosing between an iPhone and a
Samsung smartphone, she can determine whether she prefers
the iPhone, the Samsung, or is indifferent between them.
, 2. Transitivity (Logical Consistency in Preferences)
o If a consumer prefers good A over good B and prefers good
B over good C, then they should also prefer good A over
good C.
o Example: If John prefers Coca-Cola over Pepsi and Pepsi
over Fanta, then logically, he should also prefer Coca-Cola
over Fanta. This ensures consistency in decision-making.
3. Non-Satiation (More is Better than Less)
o Consumers always prefer more of a good to less, assuming
no negative effects from consumption.
o Example: A coffee lover, Lisa, would always prefer having
two cups of coffee instead of one if both are free, as more
coffee gives her greater satisfaction.
These assumptions help economists understand consumer behavior and
predict market demand patterns.
1.2 Critically evaluate why the marginal rate of substitution
between two goods must equal the ratio of the price of the
goods, for the consumer to achieve maximum satisfaction. (3)
The marginal rate of substitution (MRS) represents the rate at which a
consumer is willing to substitute one good for another while maintaining
the same level of satisfaction (utility). For a consumer to achieve
maximum satisfaction, the MRS must equal the ratio of the prices of
the two goods.
This can be explained through the following points:
