Question

3. A consumer is willing to exchange two units of X for one unit of Y if he possesses at least as much X as Y . However, if he possesses more Y than X, then he is willing to exchange one unit of X for one unit of Y . Draw an indifference curve representing these preferences.

4. A consumer likes to eat apples but hates oranges. What can you infer about the MRS of this consumer?

Answer 1

1- indifference curve shows all the combinations of goods which give same level of satisfaction. it means every point on an indifference curve provide same satisfaction to the consumer. As given above a consumer is willing to exhange two units of x for one unity of y if he possesses at least as much x as y. To draw an indifference curve of a consumer to represent his preferences lets take an example:

Suppose consumer can have 10 units of two commodities x and y with given prices and consumer is willing to exchange 2 units of x for 1 unit of y we can draw an indifference schedule as follows:

good x	good y
8	2
6	3
4	4
2	5

from the above schedule we can draw an indifference curve as follows:

However, if he possesses more y than x, then he is willing to exchange 1 unit of x for 1 unit of y and we can show his preferences through following example:

suppose the indifference curve is as follows:

good x	good y
6	7
5	8
4	9
3	10

from the above schedule we can draw an indifference curve as follows:

so in above both the indifference curves the preferences of the consumer are shown.

2- MRS (Marginal rate of substitution) is the rate at which consumer is willing to exchange one commodity for another. If a consumer likes to eat apples and hates oranges then he will not exchange apples for oranges so cannot calculate MRS of this consumer.