Microeconomics Seminar 1

1. If Anna has rational preferences, C and F are not possible options.

This is because, if she chooses A to B and B to C she cannot prefer C to A.

Similarly, if she prefers B to A and C to B she cannot prefer A to C

Does not say strict preferences

A,B,C ranking for a

A,C,B for b

BAC for d

BCA for e

CBA for g

For c, she can be indifferent between the 3

2. Continuity: If an individual weakly prefers points that are very close to X than to Y, then they
should also weakly prefer X to

Continuity is not violated as the indifference curve is continuous and does not have any jumps

Convexity: average is preferred to extreme

This is violated (both weak and strong) as in this case extremes are preferred to the average

Monotonicity: more is better

Weak monotonicity is never not satisfied if strong monotonicity is!

Increasing consumption of a bit of one good should increase utility but not the case here if does not
reach new indifference curve so not strong monotonicity

Weak monotonicity is satisfied as a bit more studying does not decrease her utility (is at least as
good at)

Here better
than average

50
Indifference
curve

50 100
3.

B: Yes, this sums to 104 > 100

C: she will not choose (12,18) because (12x2) + (4x18) = 96 whereas with (10,20), (10x2) + (20x4) =
100 which is on the budget line. Both goods are affordable

She will never choose point in budget set (monotonicity)

Those on budget line are strictly better

4. E (all of the above), input values

5. B (good 2 is a bad so the indifference curves slope upwards and the direction of increasing utility is
downwards)

6. 30 = PBQB + PMQM

PM = £1, PB = ?

30= PBQB + QM

When QM = 5, QB≤5

25 = PBQB

So PB≥5

When QM = 9, QB ≥ 3

30 = PBQB + QM

21 = PBQB

If QB ≥ 3, PB≤ 7

So the price of a loaf of bread is 5≤B≤7

Therefore, only C is true

 Midterm 2
7.

Increasing utility
50

30 Midterm 1
A:

MRS = 0 at 30,50

Midterm 2

Midterm 1
L shaped is infinity

Other one is minimum

At (30,50), professor Goodheart’s class has a slope of 0. Only the best score is counted

At (30,50), professor Goodheart’s class has a slope of infinity as only the worst score is considered.

Therefore, the class must be professor Goodheart’s

8. 11 = QD + 2QS

6500 = 1500D + 500S

Substituting QD = 11-2QS

6500 = 1500 (11- 2QS) + 500QS

6500 = 16,500 – 3000S + 500QS

2500QS = 10,000

QS = 4 so QD = 3 so up to 4 seafood salads a day and 3 bags of Doritos per day (A and C)

But he could purchase 5 seafood salads and one bag of Doritos and still be at 4000 calories
 He cannot consume more than 3 bags of Doritos e.g. if he consumes 5 bags (must be odd), this
would mean one seafood salad could be consumed which goes over the calorie limit (8000)

Answer: A

(we don’t require that he meets the calorie limit)

Xd

11 Calorie constraint: 1500XD +

4.333 500XS = 6500

3 Budget constraint: XD +
2XS = 11

Xs
4 5.5 13

9. 10 = 1/30PS + 1/5E

50 pages of economics and 150 pages of political science

If E = 30, this takes 6 hours and she has 4 hours remaining for PS so PS = 120

Political
science
If she spends all her time (10
pages
hours) reading political science
she can read 300 pages
300

If she completes her 150 page

150 political science assignment, she
only has time to read 25 pages of
econ
120

25 30 50
Econ pages
Her options are anything in this triangle. She must
read at least 30 pages of economics but can read up to
50 or read any combination of pollical science and
econ after 30 pages of econ. She can even read
nothing after the 30 pages of econ
 30 pages of economics will take 6 hours so in the other 4 hours she can read 120 pages of political
science

10. Josephine chooses to consume 54 = 7P A + 10PT (optimal point)

PT = 2PA

So 54 = 7PA + 20PA

54 = 27PA

PA = 2 so PT = 4

Budget constraint 54 = PAQA + PTQT

54 = 2QA + 4QT

If QA = 0, QT = 13.5

If QT = 0, QA = 27

New = 54 = 2QA + 5QT when QA is less than 3Kg (1-3)

54 = 1.5QA + 5QT when QA is more than 3Kg (4-7)

Kinked budget constraint

For QA is less than 3Kg (1-3), when QA = 0, QT = 10.8

For QA is more than 3Kg (4-7 and more ), when Q T = 0, QA = 36

Tobacco QT

13.5

10.8

9.6

36

3 27 Apples QA