Use the lour properties of indifference curves nary goods illust s lustrated in

Question

Use the lour properties of indifference curves nary goods illust s lustrated in Figure 10A-4 to anawes the a Can you rank the following twu bundles? I11 which property of indiference curves helps you rank them? a meals Bundle B: 4 movie tickess and 8 cafeteria meals b. Can you rank the following two bundles? II so, which property of indifference curves helps you rank them Bundle A: 2 movie tickets an Bundle B 4 movie tickets and 3 cafeteria meals c. Can you rank the lallowing two bundles? II so, chich property of indifference curves helps you rank them? Bundle 4 12 videos and 4 bags of chips Bundle B 5 videos and 10 bags of chips d. Suppose you are indifferent between the following two bundles Bundle A 10 breaklasts and 4 dinners Bundle B 4 breakfasts and t0 dinners Now compare bundle A and the following bandle Bundle C 7 breakfasts and 7 dinners

Explanation / Answer

a) Indifference curve has the property that if more quantity of both goods or any one good, quantity of the other remaining same are consumed it implies higher utility.

In Bundle B, more of both movie tickets and cafeteria meals are consumed, thus it is better.

b) In bundle B, more of movie tickets are consumed, cafeteria meals remaining same. Bundle B is preferred over bundle A.

c) We cannot rank this unless marginal rate of substitution is known.

d) Indifference between bundla A and bundle B implies marginal rate of substitution(MRS) between breakfast and dinner is 1.

Bundle A and C will also be indifferent as they have same MRS =1.

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