CHAPTER 5: DIFFERENT TYPES OF TASTES

Question 1

Different types of tastes are represented by

Answer 1

Different types of indifference maps

Question 2

Ways indifference maps differ

Answer 2

Shape of curves
(Perfect subs + complements)

Way curves relate to one another
(Nomothetic, quasi linear, normal + inferior)

Whether the curves cross the axis (essential vs non-essential goods)

Question 3

Perfect substitutes

Answer 3

Same indifference curve

Linear

Same MRS at every bundle

Question 4

Perfect subs utility function + MRS

Answer 4

U(x1,x2) = x1 + x2

MRS = -a/b

Question 6

As a A and b are both positive, the value of the function increases when

Answer 6

The amount of either good increases, meaning monotone preferences.

Question 7

Convexity depends on

Answer 7

When x increases.

Question 8

Preferences are strictly conveys if the value of mrs_____

And conveys if it

Answer 8

Diminishes

Stays the same

Question 9

Perfect complements =

Answer 9

Goods consumed together or worthless

Question 10

Maps for perfect complements are

Answer 10

L shaped as consumers are unwilling to substitute

Question 11

Perfect complements utility function

Answer 11

U(x1,x2) = min {x1,x2}

Question 12

Adding curvature to perfect substitutes indifference maps,

Answer 12

The goods are still relatively substitutable because the MRS is changing slowly along each indifference curve

Question 13

As the curvature increases

Answer 13

Degree of substitutability decreases

Question 14

Elasticity of substitution

Answer 14

Based on the speed (ratio x2/x1 change for change in Mrs) the MRS changes as we move along the indiff curve

Measure of the degree of substitution

Question 15

The flatter the indiff curve

Answer 15

Larger the change in x2/x1 is for any change in MRS

Question 16

Elasticity of substitution eqation

Answer 16

Weird o thing = |%change (x2/x1) / %change MRS|

DLn(x2/x1) / dln|MRS|

Question 17

Homoethic tastes

Answer 17

mrs depends only on the relative quantity of each good in the bundle. MRS remains constant on any ray from the origin

Relative quantity of each good remains constant along each ray from the origin

Question 18

Are Perfect subs and complements homoethic?

Answer 18

Homothetic as no matter what ray from the origin, all bundles on the ray have the same MRS.

Question 19

Quasi linear tastes

Answer 19

Quasi linear in x1 when the Mrs only depends on the quantity of X1 in the bundle (not x2)

Question 20

Quasi linear tastes implies

Answer 20

Goods requiring small portions of income, same quantity even if income changes

Question 21

Quasliniear mrs

Answer 21

Always constant

Question 22

Tastes for Perfect subs + complements quasi linear?

Answer 22

Subs = quasi linear because bundles have the same MRS

Complements = quasi linear = one goood alone increases happiness, so no

Question 23

Non-essential goods

Answer 23

Goods we can live without

Question 24

Essential goods

Answer 24

Need some of each good, good must have indifference curve converage at the other goods axis

Question 25

Cobb Douglas utility

Answer 25

Represents tastes between perfect subs + complements

Question 26

Cobb Douglas elasticity of sub

Answer 26

1 at every bundle

Question 27

CES

Answer 27

Constant elasticity of sub

Question 28

CES is

Answer 28

Perfect subs, perfect complements, Cobb dougllus

Question 29

Any function in ces

Answer 29

Elasticity of substitution is the same at all consumption bundles

Question 30

Funny o thing for ces

Answer 30

1/(1+p)

Question 31

As p approaches -1 the EofS approaches.. As p approaches infinity, EfoS approaches ..

Answer 31

Infinity 0

Question 32

Setting aplpha at what causes symmetry

Answer 32

0.5

Question 33

As p approaches infinity…

Answer 33

Perfect complements

Question 34

Homothetic tastes equation

Answer 34

F(tx1,tx2) = t^kf(x1,x2)

Question 35

Tastes are Homothetic is Mrs is homogeneous of

Answer 35

Degree 0

Question 36

Are all CES functions Homothetic

Answer 36

Yea