eae ee 4]. rincines of decson making 1k Aswe mone lng an indica cure fm te S] b icommerpctrenesnilsot ee icra srs ose ues ec ual Pes atten fare Equnalemly th sun of oe goo Yeu *] Sommer theory sme that consmer’ prefers 19compewsaea consumer fra ed tangs in anh e] Gok ine seme attcy eect the Ranking gan hence the MRS for with declines ve] Soup tao sme hat ther dession retest fecores more pet and Y eco mow sae 4} Fretrences inthe seme they espe! the Choice ‘Ear vk ab a dlining MRS. +] Pinerie fe stand way fo sre consames pecferenss Commer preferences rater fto write formas fr thi maria 2° Since many consumer sins re inerdependet nes of substan Fe capaccmumpdna bende e Whether or ot wo indivi can engaze int bs Farben, is easoable assume beneficial depends on thet maria aes of Thtcinuner prefer moetolesInsunmarang be stttaon opens ofinileene curves below, we ake tis fe Theinierenc ures for fet sobs are Semon Sigh ic. nace curves forgookarethinand never spe The inlrence curves fr eft complemsts 8 cen {stoped serial bone Mink pit and borat The inderece cave at us rough ny below Secumpton bangle calltX ste Boundary thar 4 Utility ; saree tecetan-Xakeravesromall ter & Economists se he concept of ity osama Sims The bacrthanateranes ett norbrest_ ebrything hts known about a consumers prefer tierce curve. The worse-than¥ alternatives bh Wecan eee aul function from a faa of| q Tistothe southwest inference curves by asigning the same wilt a fe nifornce curves fromthe sme family never cuss, all bundle on an indifference curve, wit higher ah ' fncomparing any two alteratves, the consumer ‘signe to indference curves tat correspond to hig : ctetneone lamedon heindierence curve frhest_ levels of wellbeing, We an construct indifference ce . from he gin from suit function by sting the freon equal » {One way to deseibe consumers preferences constant ‘ J utcaly to wre formulas forthei indifference I modem microeconomic theory tility funtion a — ‘ly inten to summarize oda information, . 1 Foreverybad there san associated good. We can 1. By ise the marginally ofa good doesnot * gpl conse theory toads hy thinking about he measure anything meaningful. However, the rai of x Suited os marina lies fortwo goods is equa othe mart A. Substation between goods rate of rubstituton between them. : 2 The marginal a of sustain vas fom one Peeters he pene FE conser ache egos queso. ie i n “ RT ntact} x “ SS] Beret: ater mis chne atdcompin, ta dies ity seen th ne ig BPlkeseddiite nays teams Hdepnon ete eo” sth pobom with consumer prefrence hey? Minit vegetarian who des ct (one way oe ey oe tout met 14.2: Sipe thereat two pes fat mest and Tak, a su wrestler, crs oly about the umber ot Draw indircnce cures forte wing conser calories he cobs he wan cum 5 may Faia variety and prefers to cat meat nd ead togsher. lois as posible.{Lary loves to eat and enjoys varity, but he aso wants to lose weight. He therefore thinks that oe i good at low quantities, and a bad thigh quantities, Exercise 43: Gary bas to children, Kevin and Dora Each ‘one consumes “yummie and ating else. Gry loves both children equally For example hes equally happy when Kevin has two yummie and Dra has thee or when Kevin has three yummies and Dora has evo. But e shaper when their consumption is more ua. Draw Gary’ nifference cures. ‘What woul hey lok ike ihe loved oe child more than the tier? Exercise 44: Asin the previous question, suppose that Gary loves Kevin and Dora equally Whats his marginal ae of substitution between Kevin's yummies and Dot’ yurmies ‘hen each has he same number of yummies? Does it become larger or smaller when Kevin bas more yummies thn Dora? ‘What about when Dra has more yummie than Kevin? [xercive 48: For lunch, da prefer to eat soup ad bread in fixed proportions. When she ets X pins of soup, she prefers teat VX ounces of ead, Ishe bas pins of soup and more than V¥ ounces of bread she etl he soup slong with VX ounces of bea and throws the extra bread awa. IF she has X pints of soup and fewer han V2 ounces of bread (say Yunces), sho eats al th read long with 1? ounces of ‘soup and throws the extra soup avay. Draw Ada indiference éurves between Soup and bread Exercise 446; Think of ve examples of bas In each ase, ‘what is tbe associated good? (For example, ar pollution s 3 bad len asthe associated good.) Exercise 4.7: Ryan hates both water pollution an ir pollation. He thinks thatthe him cased when water polation Increases by a fined amount ses withthe ttl amount of water pollution, and thar the im saused whe ar pollution iereases by axed amount rises withthe tl amount of ait polation. Sketch Ryan indfeence curves forthe amount of ‘water pollution andthe amount of ir pollution. Indicate ow hanks the curves you've den, rercise 48: Suppose bundles A snd lie onthe same inference curve, Bundle C ies between bundles A and on aight ine that connects them, The consumer’ preferences Satis the Declining MRS Principe, Does the consumer prefer CtoA and B, or does he prefer and B to C? Exerelse 4.9 Nor likes to beod rabbis, Clery, she c's gt ery fr with one abit Thinking abou the tadeofs between rabbis and other goods, would you expect he Declining MRS Principe to old? Can you thik of other situations in which itmight be violated? Exercie 4.10: What do you think the indifeence curves in Figure 45 would look ike forthe typeof person who prefers to purchase a sports car? What abot the pe of person who refers to purchase subcompact? ere 4.11: John MRS for reading books with watching ‘movies is three movies pe book regardless of the amounts ‘consumed, Would heater ead two books and watch no ‘movies, oF read ne Books and watch wo movies? Whats ‘he orm fr his family of indifference curves? What do these curves lok lke? In this exampls are movies nd bak perfect substnes, perfect complements, o neither? Exercive 4.12: Do the following pairs of products serve as complements or subsites? In each case, the degre of Complementarity or substitu high or oe? Do your answers depend on the contexts in which the poods ae use? (1) Bread and butter. 2) Ballpoint pes and computers. (@) Facsimile service and mail service, (8) Movies and video games. (5) Gasoline nd ethanol (6) Wiees telephone Service and standard viene) telephone servie. (7) Dil (Cs recorded by the same rock group. (8) Letace and bet. Exercise 4.13: Kate hs 25 M&Ms and Antonio hs 10 Milk Duds Suppose Kates MRS for Milk Dus wih M&Ms is +4 regardless of what se consumes, and that Antonio’ ie 3 ‘regardless of what he consumes. Kate ad Antonio tae ail ‘here sno futher opportunity for mutual pain, Can you sy anything about wha they've traded (ow may M&Ms for, CONSTRAINTS, CHOICES, AND DEMAND ‘After reading this chapter, students should be able to: > Demonstrate how price and income affect a consumer's budget line. > Determine a consumer's best choice based on his preferences and how many Mik Dads)? budget tin. Exercise 4.14; Latana likes otk onthe telephone. We ca numer’s best choice by moxiiztigg ial represent her preferences with he wit fneton CUB, J) = Bf ~ Ureerstand how to find »contumer's best choice by masini 188 + 207, where B and Jaze minutes of conversation pet ity function. oath wit Bill and Jaci, spectively, IF Latany pans ee ee 1s the phone for one hour oak with only one pesson wih » Analyze the eects of changesin prices and ‘whom would she rather speak? Why? Whats the formu fr demand. het indifference curves? Plo few of tose curves, Exercise 415: Do you think there sa workable way to obtain meaning carina information about consumers prefereoces? Iso, how might you go about I why al Exercise 4.16: In Fxerise 4.14, we discussed Latanya's references for telephone conversation. According to our assumption, we can represent er preferences withthe tity function UGB, J) = 188 + 20, where Band Jar mines of consersaton per month with il and Jacki, espective, ‘What is Ltana's implied marginal uty of peeking with Bl? What ser implied marginal wit of speaking with Jackie? Whats her MRS for minus aking to Bll with minutes talking to Jackie? Exercive 4.17: Esteban likes bth chocolat ice rea nd lemon sorbet. His preferences correspond to the uly Function OCS} = C7529, where C stands for ounces of chocolat ic eeam and stands fr ounces of lemon sorb Wiite a formula for Esteban’ family of indiferene curves Plot some of those curves ona graph. Would Esteban rather have four ounces of chocolate ce cream aid wo ounces of emon sorbet or two ounces of chocolat ice ream and fut ‘ounces of lemon seret? > Explain how economists determine consumers’ preferences based on ‘heir choices. ‘recent years, the Honda Accord has consistently ranked among the best-selling cars in the United States. Yet if you ask a group of your friends to name their favorite automobiles, few would place the Accord near the top It lack the luxury ofa Bentley, the engineering of a Mercedes, the sex appeal of a Ferrari, the sophis- tcason of an Aston-Marti, the performance of a Porsche. The Accord is simply {plain-looking car that delivers a safe, comfortable ride with relatively few head- ‘ches. Above al, i's affordable: the price is reasonable and the maintenance cost is low. The Ferrari Enzo may turn heads, but its $643,330 price tag keeps most buyers ‘ut ofthe showroom. When the owner ofa $23,000 Honda Accord says the Ferari Enzo is, ‘ot affordable, his meaning is obvious. Most people just don't have the nec= ‘sary cash to buy an Enzo, But when he says he can't afford a $47,000 Mercedes E320, his meaning i probably more subtle. Many Accord owners ‘vuld purchase more expensive cars. They choase the Accord because they on’ think las ca is worth the necessary sacrifices, which could include orking verti, skipping vacations, oF living in «xmallr home. Eset