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REVIEW QUESTIONS 99
are both positive), then indifference curves will have a other will be constant, and the indifference curves will
negative slope. be straight lines.
• The marginal rate of substitution of x for y (MRS x,y ) • If two goods are perfect complements in consump-
at any basket is the rate at which the consumer will give tion, the consumer wants to purchase the two goods in a
up y to get more x, holding the level of utility constant. fixed proportion. The indifference curves in this case
On a graph with x on the horizontal axis and y on the will be L-shaped.
vertical axis, the MRS x,y at any basket is the negative of
the slope of the indifference curve at that basket. (LBD • If a consumer’s utility function is quasilinear (e.g.,
linear in y, but generally not linear in x), the indifference
Exercises 3.3 and 3.4)
curves will be parallel. At any value of x, the slopes of all
• For most goods we would expect to observe a dimin- of the indifference curves (and thus the MRS x,y ) will be
ishing MRS x,y . In this case the indifference curves will be the same.
bowed in toward the origin.
• If two goods are perfect substitutes in consumption,
the marginal rate of substitution of one good for the

REVIEW QUESTIONS

1. What is a basket (or a bundle) of goods? b) Suppose we are given Adam’s marginal rate of substi-
tution of housing for food at the basket he currently con-
2. What does the assumption that preferences are com- sumes. Can we determine his marginal utility of housing
plete mean about the consumer’s ability to rank any two and his marginal utility of food at that basket?
baskets?
10. Suppose Michael purchases only two goods,
3. Consider Figure 3.1. If the more is better assumption hamburgers (H) and Cokes (C).
is satisfied, is it possible to say which of the seven baskets
is least preferred by the consumer? a) What is the relationship between MRS H,C and the
marginal utilities MU H and MU C ?
4. Give an example of preferences (i.e., a ranking of b) Draw a typical indifference curve for the case in which
baskets) that do not satisfy the assumption that prefer- the marginal utilities of both goods are positive and the
ences are transitive. marginal rate of substitution of hamburgers for Cokes is
5. What does the assumption that more is better imply diminishing. Using your graph, explain the relationship
about the marginal utility of a good? between the indifference curve and the marginal rate of
substitution of hamburgers for Cokes.
6. What is the difference between an ordinal ranking c) Suppose the marginal rate of substitution of ham-
and a cardinal ranking?
burgers for Cokes is constant. In this case, are ham-
7. Suppose Debbie purchases only hamburgers. Assume burgers and Cokes perfect substitutes or perfect
that her marginal utility is always positive and dimin- complements?
ishing. Draw a graph with total utility on the vertical axis d) Suppose that Michael always wants two hamburgers
and the number of hamburgers on the horizontal axis. along with every Coke. Draw a typical indifference curve.
Explain how you would determine marginal utility at any In this case, are hamburgers and Cokes perfect substi-
given point on your graph. tutes or perfect complements?
8. Why can’t you plot the total utility and marginal 11. Suppose a consumer is currently purchasing 47
utility curves on the same graph? different goods, one of which is housing. The quantity of
housing is measured by H. Explain why, if you wanted to
9. Adam consumes two goods: housing and food.
measure the consumer’s marginal utility of housing
a) Suppose we are given Adam’s marginal utility of hous- (MU H ) at the current basket, the levels of the other 46
ing and his marginal utility of food at the basket he cur- goods consumed would be held fixed.
rently consumes. Can we determine his marginal rate of
substitution of housing for food at that basket?