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Intermediate Microeconomics Hal Varian Chapter 3 solutions
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Solutions to Varian's Intermediate Microeconomics Chapter 3 Q1-11
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Microeconomics - Consumer Theory
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3. PREFERENCES1. Such an observation could also be interpreted as the consumer is indifferent
between the 2 bundles and hence, it is not possible to assert that they strictly prefer
the chosen bundle.
2. The relationship is transitive (having 2 statements with the given relation allows us
to deduce the third) and complete (all people can be compared)
3. The relation is transitive and complete but not reflexive.
4. The relation is complete since he can compare any 2 linemen. It is also transitive.
5. An indifference curve cannot cross itself. X and Z are on the same indifference curve
meaning the individual is indifferent between the bundles. However, X is on an
indifference curve below the one with Y on it, meaning that the consumer should
prefer Y to X. But Y and Z are on the same indifference curve (provide the same
utility). This leads to a contradiction as it implies that the individual prefers Y to X but
is also indifferent between X and Y
6. Monotonicity states that a consumer will always prefer a bundle with at least as
many of both goods and more of one. However, this still does not explain the
intersecting indifference curves in figure 3.2. This would insinuate that Y has a
greater quantity of goods that X but also has the same amount of goods as X leading
to an obvious contradiction
7. Since the items on both axes are bads, the indifference curves will be the same as for
a graph where both items are goods. Hence, the indifference curves will have a
negative slope
8. Convex preferences mean that the first point on an indifference curve that will meet
the budget constraint is the one that is a combination of both goods. If the individual
is consuming at a point where only 1 good is consumed, they are able to move to a
higher indifference curve (assuming convex preferences). Hence, they prefer the
average of the 2 goods to an extreme where 1 good is consumed
9. Suppose $1 bills are good X on the x-axis and $5 bills are good Y on the y-axis. Then
the slope of the indifference curve (perfect substitutes) will be -1/5
10. A neutral good does not change the utility obtained by the consumer. Hence, the
marginal utility will be 0. The marginal rate of substitution for good 2 will therefore
be 0
11. Preferences are concave if the extremes are preferred to the average. Hence, this
will involve situations such as eating foods that aren’t supposed to go together.
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