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Chapter 2 Consumer Equilibrium Solutions

Question - 11 : -
If the consumer has monotonic preferences, then can he/she be indifferent towards bundles (10, 8) and (8, 6)?

Answer - 11 : -

No, he/she cannot be indifferent towards these two bundles as bundle I consists of more of both goods as compared to bundle II. He/she will prefer bundle I over bundle II as it contains 10 units of good 1 and 8 units of good 2 as compared to 8 units and 6 units of good 1 and good 2 respectively in bundle II.

Question - 12 : -
Suppose a consumer’s preferences are monotonic. What can you say about his/her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?

Answer - 12 : -


S.No

Bundles

U1

I)

(10, 10)

3

II)

(10, 9)

2

III)

(9, 9)

1
As the consumer’s preferences are monotonic, more is better and he/she will prefer bundle I over the rest of the bundles. This means that bundle I will be assigned a higher utility number i.e., three (rank = three) out of the available three bundles.

Question - 13 : -
Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?

Answer - 13 : -

It is given that my friend is indifferent towards the bundles (5, 6) and (6, 6). This implies that his/her preferences are not monotonic. If he/she is indifferent towards both the bundles, then it means that he/she derives the same level of satisfaction and assigns them the same rank. However, the second bundle consists of more of both the goods. Thus, according to the monotonicity assumption, he/she must prefer the second bundle over the first.

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