1) What are the three conditions that must for ‘regular preferences’? Explain briefly.
2) From Banerjee Chpt 3 p39, ‘with strictly monotonic preferences, a bundle that is indifferent to A must lie either in the northwest quadrant or in the southeast quadrant from A.’ Briefly explain this statement.
3) How do preference relations relate to utility relations?
4) What is an indifference curve?
5) What is the marginal rate of substitution (MRS)? How do we express it mathematically? What is its economic interpretation?
6) What is the MRS for the linear utility function u (x1, x2) = 5×1 + 4×2?
7) What is the MRS for a generic linear utility function like u (x1, x2) = ax1 + bx2, with a, b > 0?
8) Show some exemplary indifference curves for a generic linear utility curve in a graph.
9) For u (x, y) = xy, what is the MRS? (Include the marginal utilities for both goods x and y in your answer; show as an intermediate step to your answer.)
10) Show some indifference curves for the utility function given in 9) in a graph. Why do indifference curves representing regular preferences not intersect each other?
11) For u (x, y) = Axayb, with A, a, b > 0, what is the MRS? (Include the marginal utilities for both goods x and y in you answer.)
12) What does a ‘diminishing marginal rate of substitution’ describe and imply?
13) What advantage is there in using an ordinal utility concept to represent individuals’ preferences instead of a cardinal one?
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