ECON 410: Homework #2

Directions:
1. This assignment is due by 11:59pm on Wednesday, January 29. An answer key will be
posted on Canvas under Resources in the Homework Assignments folder at 12:15am
Thursday morning. It’s your responsibility to allow enough time before submission to
safeguard against technical glitches.

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Multiple Choice Questions (5 points each)

1. Katherine likes bananas but doesn’t like pears. For every additional pear she consumes, she
must also consume decreasing amounts of bananas to remain as well. (For example, suppose
you must give her 10 additional bananas when giving her the 6th pear but then only need to
give her 9 additional bananas for the 7th pear.) Which indifference map could represent
Katherine’s preferences, where U1 < U2 < U3?

a. Figure A
b. Figure B
c. Figure C
d. Figure D

2. Haile likes X and Y and is always willing to trade 3 units of X for each additional unit of Y.
Which of the following utility functions could represent Haile’s preferences?
a. 𝑈(𝑋, 𝑌) = 𝑋 + 3𝑌
b. 𝑈(𝑋, 𝑌) = 3𝑋 + 𝑌
c. 𝑈(𝑋, 𝑌) = 𝑋 3 𝑌
d. 𝑈(𝑋, 𝑌) = 𝑋𝑌 3
e. 𝑈(𝑋, 𝑌) = min(𝑋, 3𝑌)
f. 𝑈(𝑋, 𝑌) = min(3𝑋, 𝑌)
3. Michael likes X and Y but only gets additional utility from another unit of X if it is paired
with exactly 3 units of Y. Which of the following utility functions could represent Michael’s
preferences?
a. 𝑈(𝑋, 𝑌) = 𝑋 + 3𝑌
b. 𝑈(𝑋, 𝑌) = 3𝑋 + 𝑌
c. 𝑈(𝑋, 𝑌) = 𝑋 3 𝑌
d. 𝑈(𝑋, 𝑌) = 𝑋𝑌 3
e. 𝑈(𝑋, 𝑌) = min(𝑋, 3𝑌)
f. 𝑈(𝑋, 𝑌) = min(3𝑋, 𝑌)

4. An individual has preferences represented by the utility function: 𝑈(𝑥, 𝑦) = 𝑥(2𝑦 − 5).
Which of the following statements is TRUE concerning her marginal rate of substitution of x
for y?
a. If the individual has 10 units of x and 10 units of y, she would be willing to trade a
maximum of 4/3 units of y to get 1 additional unit of x.
b. If the individual has 3 units of x and 4 units of y, she would be willing to trade a
maximum of 2 units of x to get 1 additional unit of y.
c. If the individual has 2 units of x and 4 units of y, she would be willing to trade a
maximum of 4 units of y to get 3 additional units of x.
d. If the individual has 10 units of x and 5 units of y, she would be willing to trade a
maximum of 4 units of y to get 1 additional unit of x.
e. All the statements above are false.

5. Sammi always likes good Y. Initially, she likes good X, but once she has consumed enough
of it, she starts to dislike it. Which of the following indifference curves could represent her
preferences?

a. Figure A
b. Figure B
c. Figure C
d. Figure D
6. An individual’s preferences are represented by the utility function, 𝑈(𝑋, 𝑌) = 𝑋 3/2 𝑌1/2 .
Which of the following statements is false?

a. The marginal utility of x increases as x increases, holding y constant.

b. Preferences are monotonic in both goods.
c. The marginal rate of substitution of x for y increases as the consumer consumes more x,
holding y constant.
d. The consumer is willing to give up decreasing amounts of good y for each additional unit
of good x and remain as well off.

7. An individual’s preferences are represented by the utility function U(x, y) = x + 3y1/3. Which
of the following statements is true?
a. Goods x and y are considered perfect substitutes.
b. The marginal rate of substitution of x for y decreases as the consumer consumes more x
and less y, from left to right along an indifference curve.
c. The marginal utility of x decreases as x increases, holding y constant.
d. The consumer is willing to give up a constant amount of good y for each additional unit
of good x, to remain as well off.

8. A consumer has preferences that can be described by the quasi-linear utility function,
𝑈(𝑥, 𝑦) = 𝑥 𝑎 + 𝑏𝑦, where 0 < a < 1 and b > 0. Good X exhibits _______ marginal utility,
and the corresponding indifference curves slope downward at _______rate as the consumer
moves from left to right along an indifference curve.
a. increasing; an increasing
b. decreasing; a decreasing
c. increasing; a decreasing
d. decreasing; an increasing
e. increasing; a constant
f. decreasing; a constant
9. Kassia’s preferences are monotonic in both X and Y. Moreover, she is willing to give up
increasing amounts of good Y for each additional unit of good X, to remain as well off.
Which of the following utility functions could represent Kassia’s preferences?

a. 𝑈(𝑋, 𝑌) = 𝑋 + 𝑌 2
b. 𝑈(𝑋, 𝑌) = (𝑋1/2 + 𝑌1/2 )2
c. 𝑈(𝑋, 𝑌) = 𝑋 2 𝑌 2
d. 𝑈(𝑋, 𝑌) = 𝑋 2 − 𝑌1/2

10. Suppose that preferences are monotonic in good X and that good X exhibits a diminishing
marginal utility, holding the consumption of good Y constant. Which of the following is
necessarily TRUE?
𝑑𝑀𝑈𝑋 𝑑2 𝑀𝑈𝑋
a. > 0 and <0
𝑑𝑋 𝑑𝑋 2

𝑑𝑈 𝑑2 𝑈
b. > 0 and 𝑑𝑋 2 < 0
𝑑𝑋

𝑑𝑀𝑅𝑆 𝑑𝑀𝑅𝑆
c. < 0 and >0
𝑑𝑋 𝑑𝑌

𝑑𝑀𝑈𝑋 𝑑𝑀𝑅𝑆
d. > 0 and <0
𝑑𝑋 𝑑𝑋

𝑑𝑈 𝑑𝑀𝑈𝑋
e. < 0 and >0
𝑑𝑋 𝑑𝑋
Long Form Questions
1. Consider the utility function, U(X, Y) = X + XY + Y.
a. Does the marginal utility of X diminish, remain constant, or increase as the consumer
buys more X, holding Y constant? Use derivative(s) to justify your response. (9 points)

b. Is the MRS of X for Y diminishing, constant, or increasing as the consumer substitutes X

for Y from left to right along an indifference curve? Use derivative(s) to justify your
response. (13 points)

2. For each of the following utility functions, draw an indifference map with 3 indifference
curves. Be sure to label your axes and label your curves as IC1, IC2, and IC3, where U1 < U2
< U3. (7 points each)
1
a. 𝑈(𝑋, 𝑌) = 2 𝑋 + 3𝑌

b. 𝑈(𝑋, 𝑌) = 𝑋 2 + 𝑌 2
c. 𝑈(𝑋, 𝑌) = −𝑋 + 𝑌1/2
d. 𝑈(𝑋, 𝑌) = min⁡(3𝑋, 5𝑌)