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Sarah enjoys eating both apples (good 1) and oranges (good 2)

Economics Oct 24, 2020

Sarah enjoys eating both apples (good 1) and oranges (good 2). Her preferences over these two goods are strictly monotonic and strictly convex. Remember the formal definition of convexity: if preferences are strictly conver, then if a consumer is indifferent between two bundles, she prefers a conver combination of those bundles to either bundle. Sarah is choosing between the following bundles: Bundle ? B ? D E Apples Oranges 1 3 5 3 3 2 1 1 5 (a) List the bundles from her most preferred to her least preferred, indicating any potential cases where we don't yet have enough information to rank the bundles. (b) Suppose Sarah tells you she's indifferent between bundles A and E. Using that information, sketch a possible indifference map showing the indifference curves passing through each of the five bundles. (c) Sarah's friend Katrina also likes apples and oranges, but her preferences aren't quite the same: she prefers more fruits than less, but only cares about the total number of fruits she eats, not which kind they are. (Therefore, for example, she would be indifferent between eating 4 apples, 4 oranges, or 2 of each.) Repeat part (a) for Katrina and draw her indifference curves passing through each of the five bundles. Are her preferences strictly monotonic? Are they strictly convex?

Expert Solution

a. List of bundles from most preferred to least preferred-

Bundle Apples Oranges
Bundle B 5 3
Bundle E 5 1
Bundle C 3 2
Bundle A 1 3
Bundle D 1 1

NOTE- A Consumer prefers a bundle which provides him/ her more of good 1 but no less of other. All the combinations of good 1 and good 2 lying above the curve are more preferable to combinations lying along the curve or below the curve.

b. Indifference curve for Sarah's preferences-

c. Sarah's friend Katrina's Indifference Curve-

Katrina's preferences are monotonic as she prefers more of apples but no less of oranges. She is concerned with the number of fruits she consumes. Henve being a rational consumer, Katrina's preferences are monotonic in nature. However, the indifference curve is not strictly convex, it is an upward sloping curve depicting simultaneous increase in the consumption of both apples and oranges.

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