Microeconomics Question from Walter E. Williams:Edit
Sketch the indifference curve mappings implied by each of the following. Show the preference directions in each case:
- (a) "I like to spend hours at the beach. I'd like it even more if I remembered to bring my suntan oil."
- (b) "I don't care whether I eat steak or lobsters."
- (c) "I'd pay anything not to take this test."
- (a) Near-Perfect complements: In this case more sun-tan oil will make you be able to enjoy the beach longer which is your primary utility improving concern. So with both suntan oil and hours at the beach you are better off than with just hours on the beach, however, suntan oil alone does not do much to make you happier without access to hours on the beach.
- (b) Perfect substitutes: For a certain unit unit of lobster and steak there is a one to one trade off between the two in terms of preference.
- (c) This is the case in which no amount of the X axis good (Test) will be tolerated. This person is willing to give up all other goods for the avoiding any portion of the test. Another example of this type of preference is the parent who is willing to give up everything for their child. While these preferences are often seen in terms of hyperbole, this is what they would look like. A more concrete example might be lexicographic preferences for a very deadly poison, even a little bit would not be tolerated. Even here it seems that a very small amount would be allowed for an infinite number of other goods. Therefore Lexicographic preferences can be best described as theoretical.
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