Intermediate Microeconomics Assignment 1

ECON2210 Fall 2023

Suggested answers

1. (a) Meat and salad are perfect complements in one-to-one ratio

(b) Indifference curves must be upward sloping because Billy has to consume more
salad to compensate for consuming more meat. The utility level for an indifference
curve is higher if it is closer to the vertical axis. The reason is that holding the
quantity of salad constant, Billy prefers a bundle with less meat.

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 (c) Cathy is indifferent about the amount of salad consumed. Hence, she is indifferent
about the bundles on the same vertical line, which all contain the same quantity
of meat. The indifference curves are vertical lines.

2. We calculate the expressions of marginal utility for each good

q
1 1 x3
M U1 (X) = x1 ; M U2 (X) = 2 x2

Notice that the marginal rate of substitution between good 1 and 2 depends on the
quantity of good 3 as well.
1
M U1 (2,7,7) 2
(a) M RS12 (2, 7, 7) = M U2 (2,7,7) = 1 =1
2
1
M U1 (3,9,4) 3
(b) M RS12 (3, 9, 4) = M U2 (3,9,4) = 1 =1
3
1
M U1 (3,9,1) 3
(c) M RS12 (3, 9, 1) = M U2 (3,9,1) = 1 =2
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Notice that M RS12 (3, 9, 1) ̸= M RS12 (3, 9, 4). Even though the two bundles
contain same quantities of good one and two, the marginal rate of substitution
between the two goods, in general, depends on the quantity of the other good.

3. The goal of this exercise is how to deduce graphical properties of indifference curve
from the properties of M RS12 .

(a) We first find out the expression of M RS12 .

 2
1 2 M U1 1 x2
M U1 = (x1 )2
; M U2 = (x2 )2
; M RS12 = M U2 = 2 x1

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 (b) Both M U1 and M U2 are always positive. The preference is strictly monotonic
and thus the indifference curve is negatively sloped.

When we along an indifference curve towards the right, it becomes flatter. This
is because M RS12 is strictly decreasing in x1 and increasing in x2 , indicating
the preference is strictly convex.

The indifference curves have the same slope along a straight line passing through
x2
the origin because M RS12 depends on the ratio x1 only.

A minor point is that M RS12 → ∞ when x1 → 0 and M RS12 → 0 when x2 → 0.

So the indifference curves never touch or cross the axes. An indifference curve
converges to a vertical line when approaching the vertical axis and converges to
a horizontal line when approaching the horizontal axis.

Why we are interested in the above properties of indifference curves, but not
the other? As we shall see, these properties will translate into properties of the
household’s optimal consumption bundle.

4. Suppose we take Bobby’s graph as qualitative. We have to contrast the properties of

indifference curves and the properties of given utility function.

Notice that ln U (x1 , x2 ) = x1 + 12 ln x2 . This is a quasilinear preference but with good

1 and 2 interchanged. We then work out the marginal rate of substitution

√
M U1 = exp(x1 ) x2 ; M U2 = exp(x1 ) 2√1x2
M U1
M RS12 = M U2 = 2x2

Alternatively, you may calculate M RS12 using the utility function U ∗ (x1 , x2 ) = x1 +
1
2 ln x2 instead.

M U1 and M U2 are always positive. The preference is strictly monotonic, so the

indifference curve is negatively sloped. When we along an indifference curve towards
right, it becomes flatter. M RS12 is strictly increasing in x2 , indicating the preference
is strictly convex. These two properties are correctly demonstrated by Bobby.

However, M RS12 depends only on x2 but not x1 . The bundles on a horizontal line
have the same value of x2 while the bundles on a vertical line have the same value of

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 x1 . Therefore, the indifference curves should have the same slope along a horizontal
line instead of a vertical line! This is the mistake in the Bobby’s graph.

5. It is insufficient to point out that U A and U B are two different functions. Different
utility functions can represent the same preference.

Suppose U A and U B indeed represent the same preference ⪰. The definition of utility
function requires that for ANY two bundles X and Y ,

U A (X) ≥ U A (Y ) ⇔ X ⪰ Y ⇔ U B (X) ≥ U B (Y )

In words, the two utility functions have to rank any two bundles in the same way. To
demonstrate that U A and U B are representing different preferences, all we need to
do is to find out ONE pair of bundles which the two utility functions rank differently,
say U A (X) ≥ U A (Y ) and U B (X) < U B (Y ).

An example of such pairs is (4, 0) and (1, 1). Note that U A (4, 0) = U A (1, 1) = 2 and
−∞ = U B (4, 0) < U B (1, 1) = 0

There are many other ways to answer this questions. For example, one can plot the
indifference curves over good 1 and 2 for the two utility functions. Another way to
show that the utility functions feature different marginal rates of substitution,
q
A = x2 B = x2
M RS12 x1 ; M RS12 x1

All these approaches are ultimately demonstrating that the two utility functions rank
certain bundles differently.

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6. (a) We now derive the committee’s preference
ˆ B ≻Com A because both Sid and Tina vote for B
ˆ A ≻Com C because both Rita and Sid vote for A
ˆ A ≻Com D because both Rita and Tina vote for A
ˆ B ≻Com C because both Rita and Sid vote for B
ˆ B ≻Com D because both Rita and Sid vote for B
ˆ D ≻Com C because both Rita and Sid vote for D
This committee’s preference is rational and B ≻Com A ≻Com D ≻Com C.
Any utility function satisfying U (B) > U (A) > U (D) > U (C) represents the
committee’s preference. An example would be
U (A) = 2; U (B) = 3; U (C) = 0; U (D) = 1
(b) We first derive the committee’s preference for any pair of options.
ˆ B ≻Com A because both Sid and Tina vote for B
ˆ A ≻Com C because both Ray and Sid vote for A
ˆ A ≻Com D because both Ray and Tina vote for A
ˆ C ≻Com B because both Ray and Tina vote for C
ˆ B ≻Com D because both Sid and Tina vote for B
ˆ D ≻Com C because both Ray and Sid vote for D
Only a transitive preference can be represented by a utility function. We now
argue that the committee’s preference is intransitive. It suffices to find out one
violation. An example of such is
B ≻Com A; A ≻Com C; C ≻Com B
Notice that the task of checking transitivity becomes increasingly difficult when
the number of options involved gets large.

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7. (a) We assume that committee members sincerely list their rankings of the options
in their ballots. We then count the total points for each option from all three
ballots.

A B C D
Ray 4 1 2 3
Sarah 3 4 1 2
Tina 2 3 4 1
Total points 9 8 7 6

Since option A receives the highest no. of points among the four options, it will
be selected.
(b) We cannot model the committee’s choice as if it maximizes some utility function.
Suppose, to the contrary, that the committee’s choices maximizes a utility
function U comm .
When all four options are available, the committee always chooses option A. It
follows that the utility level of A is higher than utility levels of all other options.
In particular, U comm (A) > U comm (B).
However, in the example with only two options A and B are available, the
committee always selects option B. It follows that U comm (A) < U comm (B),
which contradicts the previous inequality.
The ranking of options implied by a utility function must stay the same for
any feasible set. Consequently, the notion of utility maximization requires that
when the unchosen options C and D are made available (or unavailable), the
committee’s optimal option must remain the same. This restriction does not
hold for Borda count method.
This example reiterates the message that the utility maximization framework
applies to an individual’s choice but not collective choice.