Chapter 4

Question 1

Four assumptions about consumer preferences

Answer 1

1. completeness and rankability
   - consumers compare and rank bundles of goods
2. For most goods, more is better than less
3. Transitivity
   - imposes consistency on rankings
4. diminishing marginal utility

Question 2

How do you find marginal utility?

Answer 2

Take the partial derivative of the utility function with respect to both variables

Question 3

Characteristics of indifference curves (4)

Answer 3

1. They can be drawn (completeness and rankability)
2. curves farther from the origin represent higher utility (more is better than less)
3. Curves never cross (transitivity)
4. convex to the origin (diminshing marginal utility)`

Question 4

Marginal rate of substitution

Answer 4

slope of an indifference curve that shows how much of one good you are willing to give up for one more unit of another good

Question 5

Marginal Rate of substitution formula

Answer 5

MRSxy = - change in y/change in x OR

MUx/MUy