Question

1. The marginal rate of substitution is important because it tells me the kind of trades I could make to increase my utility

true or false

2. The second order conditions for utility maximization will always be satisfied for a person who has preferences that obey the transitivity axiom.

true or false

3. Expenditure minimization, the dual consumer problem, may be thought of as a process of fixing a budget line and finding which indifference curve is tangent to it.

true or false

4. The monotonicity axiom requires that I prefer more to less of a good, all other things equal

true or false

Answer 1

1.

False. It is the rate at which a consumer can substitute one commodity for another without a change in the level of satisfaction that he derives.

It show the amount of one good that the consumer is willing to give up for a unit of another good , keeping the same level of satisfaction.

2.

True. Transitivity of choice means that if the consumer has a preference a certain combination of two goods, then any decision to increase or reduce the consumption  of one for the other is not going to alter his tastes and preferences. The logical order of his choices between the two goods should not change his total satisfaction that he derives . The marginal rate of substituting one good for another should be diminishing at point of equlibrium.

3.

True. It is the problem of finding the maximum level of satisfaction as well as the amount of expenditure , in money terms , needed to maintain it, given resources ( in terms of budget limits) and given the fact that his preferences will also be constant .

4.

False. Monotonicity means that an individual should prefer a bundle of more of two goods to one less of two goods. A consumer’s bundle has a combination of two goods that give him satisfaction, the monotonicity principle requires that he prefers a bundle, consisting of more of two goods to a bundle consisting of less of the two goods.