平狄克微觀經(jīng)濟學(xué)第六版第三章課后答案

千里之行，始于足下。第2頁/共2頁精品文檔推薦平狄克微觀經(jīng)濟學(xué)第六版第三章課后答案PARTII

PRODUCERS,CONSUMERS,ANDCOMPETITIVEMARKETS

CHAPTER3

CONSUMERBEHAVIOR

Chapter3buildsthefoundationforderivingthedemandcurveinChapter4.Inorderto

understanddemandtheory,studentsmusthaveafirmgraspofindifferencecurves,themarginalrate

ofsubstitution,thebudgetline,andoptimalconsumerchoice.Itispossibletodiscussconsumerchoice

withoutgoingintoextensivedetailonutilitytheory.Manystudentsfindutilityfunctionstobeamore

abstractconceptthanpreferencerelationships.However,ifyouplantodiscussuncertaintyinChapter

5,youwillneedtocovermarginalutility(section3.5).Evenifyoucoverutilitytheoryonlybriefly,

makesurestudentsarecomfortablewiththetermutilitybecauseitappearsfrequentlyinChapter4.

Whenintroducingindifferencecurves,stressthatphysicalquantitiesarerepresentedonthe

twoaxes.Afterdiscussingsupplyanddemand,studentsmaythinkthatpriceshouldbeonthevertical

axis.Toillustratetheindifferencecurves,pickaninitialbundleonthegraphandaskwhichother

bundlesarelikelytobemorepreferredandlesspreferredtotheinitialbundle.Thiswilldividethe

graphintofourquadrants,anditistheneasierforstudentstofigureoutthesetofbundlesbetween

whichtheconsumerisindifferent.Itishelpfultopresentalotofexampleswithdifferenttypesof

goodsandseeiftheclasscanfigureouthowtodrawtheindifferencecurves.Theexamplesarealso

usefulforexplainingthesignificanceoftheassumptionsmadeaboutpreferences.Inpresenting

differentexamples,youcanaskwhichassumptionwouldbeviolated.

Explainingutilityfollowsnaturallyfromthediscussionofindifferencecurves.Thoughan

abstractconcept,itispossibletogetstudentstounderstandthebasicideawithoutspendingtoomuch

timeonthetopic.Youmightpointoutthatweasconsumershaveagoalinlife,whichistomaximize

ourutilitysubjecttoourbudgetconstraint.Whenwegotothestorewepickthebasketthatwelike

bestandthatstayswithinourbudget.Fromthiswederivedemandcurves.Emphasizethatitisthe

rankingthatisimportantandnottheutilitynumber,andpointoutthatifwecangraphanindifference

curvewecancertainlyfindanequationtorepresentit.Finally,whatismostimportantistherateat

whichconsumersarewillingtoexchangegoods(themarginalrateofsubstitution)andthisisbasedon

therelativesatisfactionthattheyderivefromeachgoodatanyparticulartime.

Themarginalrateofsubstitution,MRS,canbeconfusingtostudents.SomeconfusetheMRS

withtheratioofthetwoquantities.Ifthisisthecase,pointoutthattheslopeisequaltotheratiooftherise,?Y,andtherun,?X.Thisratioisequaltotheratiooftheinterceptsofalinejusttangenttotheindifferencecurve.Aswemovealongaconvexindifferencecurve,theseinterceptsandtheMRS

change.Anotherproblemistheterminology“ofXforY.”Thisisconfusingbecausewearenot

substituting“XforY,”butYforoneunitofX.Youmaywanttopresentavarietyofexamplesinclass

toexplainthisimportantconcept.

1.Whatarethefourbasicassumptionsaboutindividualpreferences?Explainthe

significanceormeaningofeach.

(1)Preferencesarecomplete:thismeansthattheconsumerisabletocompareand

rankallpossiblebaskets;(2)Preferencesaretransitive:thismeansthatpreferences

areconsistent,inthatifbundleAispreferredtobundleBandbundleBispreferred

tobundleC,thenweshouldbeabletoconcludethatbundleAispreferredtobundle

C;(3)Moreispreferredtoless:thismeansthatallgoodsaredesirable,andthatthe

consumerwillalwaysprefertohavemoreofagood;(4)Diminishingmarginalrate

ofsubstitution:thismeansthatindifferencecurvesareconvex,andthattheslopeof

theindifferencecurveincreases(becomeslessnegative)aswemovedownalongthe

curve.Asaconsumermovesdownalongherindifferencecurvesheiswillingtogive

upfewerunitsofthegoodontheverticalaxisinexchangeforonemoreunitofthe

goodonthehorizontalaxis.Thisassumptionalsomeansthatbalancedmarket

basketsarepreferredtobasketsthathavealotofonegoodandverylittleofthe

othergood.

2.Canasetofindifferencecurvesbeupwardsloping?Ifso,whatwouldthistellyouaboutthetwogoods?

Asetofindifferencecurvescanbeupwardslopingifweviolateassumptionnumber

three;moreispreferredtoless.Whenasetofindifferencecurvesisupwardsloping,

itmeansoneofthegoodsisa“bad”inthattheconsumerpreferslessofthegood

ratherthanmoreofthegood.Thepositiveslopemeansthattheconsumerwill

acceptmoreofthebadgoodonlyifshealsoreceivesmoreoftheothergoodinreturn.

Aswemoveupalongtheindifferencecurvetheconsumerhasmoreofthegoodshe

b.DrawasetofindifferencecurvesforJon.

SinceJonisalwayswillingtotradeonecanofcokeforonecanofsprite,his

indifferencecurvesarelinearwithaslopeof–1.

c.Drawtwobudgetlineswithdifferentslopesandillustratethesatisfaction-

maximizingchoice.Whatconclusioncanyoudraw?

Jon’sindifferencecurvesarelinearwithaslopeof–1.Jon’sbudgetlineisalso

linear,andwillhaveaslopethatreflectstheratioofthetwoprices.IfJon’sbudget

lineissteeperthanhisindifferencecurvesthenhewillchoosetoconsumeonlythe

goodontheverticalaxis.IfJon’sbudgetlineisflatterthanhisindifferencecurves

thenhewillchoosetoconsumeronlythegoodonthehorizontalaxis.Jonwill

alwayschooseacornersolution,unlesshisbudgetlinehasthesameslopeashis

indifferencecurves.InthiscaseanycombinationofSpriteandCokethatusesup

hisentireincomewithmaximizehissatisfaction.

5.Whathappenstothemarginalrateofsubstitutionasyoumovealongaconvexindifferencecurve?Alinearindifferencecurve?

TheMRSmeasureshowmuchofagoodyouarewillingtogiveupinexchangeforone

moreunitoftheothergood,keepingutilityconstant.TheMRSdiminishesalonga

convexindifferencecurveinthatasyoumovedownalongtheindifferencecurve,you

arewillingtogiveuplessandlessoftheonegoodinexchangefortheother.The

MRSisalsotheslopeoftheindifferencecurve,whichincreases(becomesless

negative)asyoumovedownalongtheindifferencecurve.TheMRSisconstant

alongalinearindifferencecurve,sinceinthiscasetheslopedoesnotchange.The

consumerisalwayswillingtotradethesamenumberofunitsofonegoodin

exchangefortheother.

6.ExplainwhyanMRSbetweentwogoodsmustequaltheratioofthepriceofthegoodsfortheconsumertoachievemaximumsatisfaction.

TheMRSdescribestherateatwhichtheconsumeriswillingtotradeonegoodfor

anothertomaintainthesamelevelofsatisfaction.Theratioofpricesdescribesthe

trade-offthatthemarketiswillingtomakebetweenthesametwogoods.The

tangencyoftheindifferencecurvewiththebudgetlinerepresentsthepointatwhich

thetrade-offsareequalandconsumersatisfactionismaximized.IftheMRSbetween

twogoodsisnotequaltotheratioofprices,thentheconsumercouldtradeonegoodfor

anotheratmarketpricestoobtainhigherlevelsofsatisfaction.Forexample,ifthe

slopeofthebudgetline(theratiooftheprices)is–4thentheconsumercantrade4

unitsofgood2foroneunitofgood1.IftheMRSatthecurrentbundleis–6,thenthe

consumeriswillingtotrade6unitsofgood2foroneunitofgood1.Sincethetwo

slopesarenotequaltheconsumerisnotmaximizinghersatisfaction.Theconsumeris

willingtotrade6butonlyhastotrade4,sosheshouldmakethetrade.Thistrading

continuesuntilthehighestlevelofsatisfactionisachieved.Astradesaremade,the

MRSwillchangeandbecomeequaltothepriceratio.

7.Describetheindifferencecurvesassociatedwithtwogoodsthatareperfectsubstitutes.Whatiftheyareperfectcomplements?

TwogoodsareperfectsubstitutesiftheMRSofoneforanotherisaconstantnumber.

GiventheMRSisaconstantnumber,theslopeoftheindifferencecurveswillbe

constant,andtheindifferencecurvesarethereforelinear.Iftwogoodsareperfect

complements,theindifferencecurvesareL-shaped.Inthiscasetheconsumer

wantstoconsumethetwogoodsinafixedproportion,sayoneunitofgood1forevery

1unitofgood2.Ifshehasmoreofonegoodbutnotmoreoftheotherthenshedoes

notgetanyextrasatisfaction.

8.Whatisthedifferencebetweenordinalutilityandcardinalutility?Explainwhytheassumptionofcardinalutilityisnotneededinordertorankconsumerchoices.

Ordinalutilityimpliesanorderingamongalternativeswithoutregardforintensityof

preference.Forexample,iftheconsumer’sfirstchoiceispreferredtotheirsecond

choice,thenutilityfromthefirstchoicewillbehigherthanutilityfromthesecond

choice.Howmuchhigherisnotimportant.Anordinalutilityfunctiongeneratesa

rankingofbundlesandnomeaningisgiventotheutilitynumberitself.Cardinal

utilityimpliesthattheintensityofpreferencesmaybequantified,andthattheutility

numberitselfhasmeaning.Anordinalrankingisallthatisneededtorankconsumer

choices.ItisnotnecessarytoknowhowintenselyaconsumerprefersbasketAover

basketB;itisenoughtoknowthatAispreferredtoB.

9.UponmergingwiththeWestGermaneconomy,EastGermanconsumersindicatedapreferenceforMercedes-BenzautomobilesoverVolkswagens.However,whentheyconvertedtheirsavingsintodeutschemarks,theyflockedtoVolkswagendealerships.Howcanyouexplainthisapparentparadox?

Threeassumptionsarerequiredtoaddressthisquestion:1)thataMercedescostsmore

thanaVolkswagen;2)thattheEastGermanconsumers’utilityfunctioncomprisestwo

goods,automobilesandallothergoodsevaluatedindeutschemarks;and3)thatEast

Germanshaveincomes.Basedontheseassumptions,wecansurmisethatwhileEast

GermanconsumersmaypreferaMercedestoaVolkswagen,theyeithercannotafforda

MercedesortheypreferabundleofothergoodsplusaVolkswagentoaMercedesalone.

WhilethemarginalutilityofconsumingaMercedesexceedsthemarginalutilityof

consumingaVolkswagen,theconsumerwillconsidermarginalutilityperdollarfor

eachgood.Thismeansthemarginalutilityperdollarmusthavebeenhigherforthe

VolkswagensinceconsumersflockedtotheVolkswagendealershipsandnotthe

Mercedesdealerships.

10.Drawabudgetlineandthendrawanindifferencecurvetoillustratethesatisfactionmaximizingchoiceassociatedwithtwoproducts.Useyourgraphtoanswerthefollowingquestions.

a.Supposethatoneoftheproductsisrationed.Explainwhytheconsumerislikely

tobeworseoff.

Whengoodsarenotrationed,theconsumerisabletochoosethesatisfaction-

maximizingbundlewheretheslopeofthebudgetlineisequaltotheslopeofthe

indifferencecurve,orthepriceratioisequaltotheMRS.ThisispointAinthegraph

below.Ifgood1isnowrationedtheconsumerwillnotbeabletoattaintheutility

maximizingpoint.Heorshewillhavetoconsumemoreoftheothergoodinstead.

ThisispointBbelow.

b.Supposenowthatthepriceofoneoftheproductsisfixedatalevelbelowthe

currentprice.Asaresult,theconsumerisnotabletopurchaseasmuchasshewouldlikeoftheproduct.Canyoutelliftheconsumerisbetterofforworseoff?

Whenthepriceofthegoodisfixedatalevelbelowthecurrent(equilibrium)price,

therewillbeashortageofthegoodandthegoodwillhavetobeeffectivelyrationed.

Asinthequestionabove,theconsumerisworseoffbecausesheisnotabletoattain

herutilitymaximizingpoint.

11.Basedonhispreferences,Billiswillingtotrade4movieticketsfor1tickettoabasketballgame.Ifmovieticketscost$8eachandatickettothebasketballgamecosts$40,shouldBillmakethetrade?Whyorwhynot?

NoBillshouldnotmakethetrade.Ifhegivesupthe4movieticketsthenhewill

save$8perticketforatotalof$32.However,thisisnotenoughforabasketball

ticket.Hewouldinfacthavetogiveup5movieticketsifhewantedtobuyanother

basketballticket.Noticealso,thatthemarginalutilityperdollarishigherformovie

ticketssoBillwillbebetteroffifheconsumesmoremovieticketsandfewer

basketballtickets.TofigurethisoutrecallthatwhatBilliswillingtododefineshis

MRS.HisMRSis4sothismeansthatthemarginalutilityofabasketballgameis4

andthemarginalutilityofamovieis1:

MRS=-4=-

MU

ball

MU

movie

=-

4

1

.

Nowthemarginalutilityperdollarcanbecomputed:

MU

ballP

ball=

4

40

=

1

10

MU

movieP

movie=

1

8

.

12.Describetheequalmarginalprinciple.Explainwhythisprinciplemaynotholdifincreasingmarginalutilityisassociatedwiththeconsumptionofoneorbothgoods.

Theequalmarginalprinciplestatesthattheratioofthemarginalutilitytopricemust

beequalacrossallgoodstoobtainmaximumsatisfaction.Inotherwords,utility

maximizationisachievedwhenthebudgetisallocatedsothatthemarginalutilityper

dollarofexpenditureisthesameforeachgood.Ifthemarginalutilityperdollarisnot

equalthenutilitycanbeincreasedbyallocatingmoredollarstothegoodwiththe

highermarginalutilityperdollar.Theconsumerwillobtainmore“bangforthebuck”

iftheyreallocatetheirdollars.

Ifmarginalutilityisincreasing,theconsumermaximizessatisfactionbyconsuming

everlargeramountsofthegood.Thus,theconsumerwouldspendallincomeonone

good,assumingaconstantprice,resultinginacornersolution.Withacornersolution,

theequalmarginalprinciplecannothold.

13.Thepriceofcomputershasfallensubstantiallyoverthepasttwodecades.UsethisdropinpricetoexplainwhytheConsumerPriceIndexislikelytooverstatesubstantiallythecost-of-livingindexforindividualswhousecomputersintensively.

Theconsumerpriceindexmeasuresthecostofatypicalbasketofgoodspurchasedby

theconsumerinthecurrentyearrelativetothecostofthebasketinthebaseyear.

Eachgoodinthebasketisassignedaweight,whichreflectstheimportanceofthegood

totheconsumer,andtheweightsarekeptfixedfromyeartoyear.Theproblemwith

fixingtheweightsisthatconsumerswillshifttheirpurchasesfromyeartoyeartogive

moreweighttogoodswhosepriceshavefallen,andlessweighttogoodswhoseprices

haverisen.TheCPIwillthereforegivetoomuchweighttogoodswhosepriceshave

risen,andtoolittleweighttogoodswhosepriceshavefallen.Fortheindividualwho

usescomputersintensively,thefixedweightforcomputersinthebasketwill

understatetheimportanceofthisgood,andwillhenceunderstatetheeffectofthefall

inthepriceofcomputers.TheCPIwilloverstatetheriseinthecostoflivingforthis

typeofindividual.

14.ExplainwhythePaascheindexwillgenerallyunderstatetheidealcost-of-livingindex.

ThePaascheindexmeasuresthecurrentcostofthecurrentbundleofgoodsrelative

tothebaseyearcostofthecurrentbundleofgoods.ThePaascheindexwill

understatetheidealcostoflivingbecauseitassumestheindividualwillbuythe

currentyearbundleinthebaseperiod.Inreality,atbaseyearpricestheconsumer

wouldhavebeenabletoattainthesamelevelofutilityatalowercostbyaltering

theirconsumptionbundle.Sincethebaseyearcostisoverstated,thedenominator

willbelargerandtheindexwillbelower,orunderstated.

1.Inthischapter,consumerpreferencesforvariouscommoditiesdidnotchangeduringtheanalysis.Yetinsomesituations,preferencesdochangeasconsumptionoccurs.Discusswhyandhowpreferencesmightchangeovertimewithconsumptionofthesetwocommodities:

a.cigarettes

Theassumptionthatpreferencesdonotchangeisareasonableoneifchoicesare

independentacrosstime.Itdoesnothold,however,when“habit-forming”oraddictive

behaviorisinvolved,asinthecaseofcigarettes:theconsumptionofcigarettesinone

periodinfluencestheirconsumptioninthenextperiod.

b.dinnerforthefirsttimeatarestaurantwithaspecialcuisine

Thisexampleisparalleltoexamplesofadventureseeking.Forsome,anewdining

experiencecreatesenthusiasmtoseekoutmoreexcitinganddifferentcuisinesand

dishes.Forothers,theydevelopafondnessforregularityandconsistencyorfearof

thenewandunknown.Ineitherofthesecases,choiceschangeasconsumptionoccurs.

2.Drawindifferencecurvesthatrepresentthefollowingindividuals’preferencesforhamburgersandsoftdrinks.Indicatethedirectioninwhichtheindividuals’satisfaction(orutility)isincreasing.

a.Joehasconvexpreferencesanddislikesbothhamburgersandsoftdrinks.

SinceJoedislikesbothgoods,hissetofindifferencecurveswillbebowedinwards

towardstheorigininsteadofoutwards,asinthenormalcasewheremoreispreferred

toless.Givenhedislikesbothgoods,hissatisfactionisincreasinginthedirectionof

theorigin.Convexityofpreferencesimplieshisindifferencecurveswillhavethe

normalshapeinthattheyarebowedtowardsthedirectionofincreasingsatisfaction.

Convexityalsoimpliesthatgivenanytwobundlesbetweenwhichtheconsumeris

indifferent,the“average”ofthetwobundleswillbeinthepreferredset,orwillleave

himatleastaswelloff.

softdrink

b.Janeloveshamburgersanddislikessoftdrinks.Ifsheisservedasoftdrink,she

willpouritdownthedrainratherthandrinkit.

SinceJanecanfreelydisposeofthesoftdrinkifitisgiventoher,sheconsidersittobea

neutralgood.Thismeansshedoesnotcareaboutsoftdrinksonewayortheother.

Withhamburgersontheverticalaxis,herindifferencecurvesarehorizontallines.Her

softdrink

c.Bobloveshamburgersanddislikessoftdrinks.Ifheisservedasoftdrink,hewill

drinkittobepolite.

SinceBobwilldrinkthesoftdrinkinordertobepolite,itcanbethoughtofasa“bad”.

Whenservedanothersoftdrink,hewillrequiremorehamburgersatthesametime

inordertokeephissatisfactionconstant.Moresoftdrinkswithoutmore

hamburgerswillworsenhisutility.Morehamburgersandfewersoftdrinkswill

increasehisutility.

softdrink

d.Mollyloveshamburgersandsoftdrinks,butinsistsonconsumingexactlyonesoft

drinkforeverytwohamburgersthatsheeats.

Mollywantstoconsumethetwogoodsinafixedproportionsoherindifferencecurves

areL-shaped.Foranygivenamountofonegood,shegetsnoextrasatisfactionfrom

havingmoreoftheothergood.Shewillonlyincreasehersatisfactionifshehas

moreofbothgoods.

softdrink

e.Billlikeshamburgers,butneitherlikesnordislikessoftdrinks.

LikeJane,Billconsiderssoftdrinkstobeaneutralgood.Sincehedoesnotcare

aboutsoftdrinksonewayortheotherwecanassumethatnomatterhowmanyhe

has,hisutilitywillbethesame.Hislevelofsatisfactiondependsentirelyonhow

softdrink

f.Maryalwaysgetstwiceasmuchsatisfactionfromanextrahamburgerasshedoes

fromanextrasoftdrink.

HowmuchextrasatisfactionMarygainsfromanextrahamburgerorsoftdrinktells

ussomethingaboutthemarginalutilitiesofthetwogoods,oraboutherMRS.Ifshe

alwaysreceivestwicethesatisfactionfromanextrahamburgerthenhermarginal

utilityfromconsuminganextrahamburgeristwicehermarginalutilityfrom

consuminganextrasoftdrink.HerMRS,withhamburgersontheverticalaxis,is

1/2.

softdrink

3.IfJaneiscurrentlywillingtotrade4movieticketsfor1basketballticketthenshemustlikebasketballbetterthanmovies.Trueorfalse?Explain.

Thisstatementisnotnecessarilytrue.Ifsheisalwayswillingtotrade4movie

ticketsfor1basketballticketthenyesshelikesbasketballbetterbecauseshewill

alwaysgainthesamesatisfactionfrom4movieticketsasshedoesfrom1basketball

ticket.However,itcouldbethatshehasconvexpreferences(diminishingmarginal

rateofsubstitution)andisatabundlewhereshehasalotofmovieticketsrelativeto

basketballtickets.Thiswouldmakeherwillingtogiveupmoremovieticketstoget

anotherbasketballticket.Itwouldnotmeanthoughthatshelikedbasketballbetter.

Herwillingnesstogiveupagoodwouldinthiscasedependonthequantityofeach

goodinhercurrentbasket.

4.JanelleandBrianeachplantospend$20,000onthestylingandgasmileagefeaturesofanewcar.Theycaneachchooseallstyling,allgasmileage,orsomecombinationofthetwo.Janelledoesnotcareatallaboutstylingandwantsthebestgasmileagepossible.Brianlikesbothequallyandwantstospendanequalamountonthetwofeatures.Usingindifferencecurvesandbudgetlines,illustratethechoicethateachpersonwillmake.

Assumestylingisontheverticalaxisandgasmileageisonthehorizontalaxis.

Janellehasindifferencecurvesthatarevertical.Ifthestylingisthereshewilltake

it,butsheotherwisedoesnotcareaboutit.Asherindifferencecurvesmoveoverto

theright,shegainsmoregasmileageandmoresatisfaction.Shewillspendall

$20,000ongasmileage.BrianhasindifferencecurvesthatareL-shaped.Hewill

notspendmoreononefeaturethanontheotherfeature.Hewillspend$10,000on

stylingand$10,000ongasmileage.

5.SupposethatBridgetandErinspendtheirincomeontwogoods,food(F)andclothing

(C).Bridget’spreferencesarerepresentedbytheutilityfunctionU(F,C)=10FC,whileErin’spreferencesarerepresentedbytheutilityfunctionU(F,C)=.20F2C2.

a.Onagraph,withfoodonthehorizontalaxisandclothingontheverticalaxis,

identifythesetofpointsthatgiveBridgetthesamelevelofutilityasthebundle(10,5).DothesameforErinonaseparategraph.

Bridgetreceivesautilityof10*10*5=500fromthisbundle.Theindifferencecurveis

representedbytheequation10FC=500orFC=50.Somebundlesonthisindifference

curveare(5,10),(10,5),(25,2),and(2,25).Erinreceivesautility

of.2*10*10*5*5=500fromthebundle(10,5).Herindifferencecurveisrepresented

bytheequation500=.2F2C2,or50=FC.Thisisthesameindifferencecurveas

Bridget.Bothindifferencecurveshavethenormal,convexshape.

b.Onthesametwographs,identifythesetofbundlesthatgiveBridgetandErinthe

samelevelofutilityasthebundle(15,8).

Foreachperson,pluginF=15andC=8intotheirrespectiveutilityfunctions.For

Bridget,thisgivesherautilityof1200,soherindifferencecurveisgivenbythe

equation10FC=1200,orFC=120.Somebundlesonthisindifferencecurveare

(12,10),(10,12),(3,40),and(40,3).ForErin,thisbundlegivesherautilityof2880,

soherindifferencecurveisgivenbytheequation2880=.2F2C2,orFC=120.

ThisisthesameindifferencecurveasBridget.

c.DoyouthinkBridgetandErinhavethesamepreferencesordifferentpreferences?

Explain.

Theyhavethesamepreferencesbecauseforanygivenbundletheyhavethesame

levelofutility.Thismeansthattheywillrankallbundlesinthesameorder.Note

however,thatitisnotnecessarythattheyreceivethesamelevelofutilitytohavethe

samesetofpreferences.Allthatisnecessaryisthattheyrankthebundlesinthe

sameorder.

6.SupposethatJonesandSmithhaveeachdecidedtoallocate$1,000peryeartoanentertaiXXXentbudgetintheformofhockeygamesorrockconcerts.Theybothlikehockeygamesandrockconcertsandwillchoosetoconsumepositivequantitiesofbothgoods.However,theydiffersubstantiallyintheirpreferencesforthesetwoformsofentertaiXXXent.Jonesprefershockeygamestorockconcerts,whileSmithprefersrockconcertstohockeygames.

a.DrawasetofindifferencecurvesforJonesandasecondsetforSmith.

Giventheyeachlikebothgoodsandtheywilleachchoosetoconsumepositive

quantitiesofbothgoods,wecanassumetheirindifferencecurveshavethenormal

convexshape.HoweversinceJoneshasanoverallpreferenceforhockeyandSmith

hasanoverallpreferenceforrockconcerts,theirtwosetsofindifferencecurveswill

havedifferentslopes.Supposethatweplacerockconcertsontheverticalaxisand

hockeygamesonthehorizontalaxis,JoneswillhavealargerMRSthanSmith.

Jonesiswillingtogiveupmorerockconcertsinexchangeforahockeygamesincehe

prefershockeygames.TheindifferencecurvesforJoneswillbesteeper.

b.Usingtheconceptofmarginalrateofsubstitution,explainwhythetwosetsof

curvesaredifferentfromeachother.

Atanycombinationofhockeygamesandrockconcerts,Jonesiswillingtogiveupmore

rockconcertsforanadditionalhockeygame,whereas,Smithiswillingtogiveupfewer

rockconcertsforanadditionalhockeygame.SincetheMRSisameasureofhowmany

ofonegood(rockconcerts)anindividualiswill