Topic 1 Consumer Theory

Question 1

Endowment Point

Answer 1

Point E gives utility maximisation, where the slope of the budget line =slope of the indifference curve.

Question 2

Budget Contraint

Answer 2

Is the set of bundles that leaves the consumer with no unspent income.

Question 3

Homothetic Tastes

Answer 3

Tastes for which the MRS depends only on the relative quantity of each good in the bundle.

Since the relative quantity of each good remains constant along any ray from the origin, homothetic tastes give rise to indifference maps for which the Mrs remains constant along any ray from the origin.

Question 4

Quasilinear tastes

Answer 4

Quasilinear preferences have the same MRS on the vertical Rays - we have utility functions that are linear in one good but non- linear in another.