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Constant Vertical Distance Between Vertically Shifted Indifference Curves
A key assumption about certain preference models, such as Angela's, is that the indifference curves are vertical shifts of one another. This property implies that the vertical distance between any two indifference curves is constant, regardless of the amount of the good measured on the horizontal axis (e.g., free time). For example, as shown in Figure 5.3b, the vertical gap between indifference curves IC3 and IC4 is the same at 12 hours of free time as it is at 18 hours of free time.
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CORE Econ
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.5 The rules of the game: Who gets what and why - The Economy 2.0 Microeconomics @ CORE Econ
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Angela's Indifference on Indifference Curve IC3
Quasi-linear Preferences
Convexity of Angela's Preferences
An individual's preferences for a consumption good (grain) and free time are represented by indifference curves that are downward-sloping and become flatter as the amount of free time (plotted on the horizontal axis) increases. What does this specific shape imply about the trade-off this person is willing to make?
An individual's preferences for grain and free time are such that the slope of their indifference curves at any point depends only on the amount of free time at that point. True or False: This individual's willingness to sacrifice grain for an additional hour of free time is higher when they have a large amount of grain compared to when they have a small amount of grain, assuming the amount of free time is the same in both situations.
Explaining Preferences for Goods and Leisure
Analyzing a Farmer's Choices
An economic model represents an individual's choices between consuming a good (grain) and enjoying leisure (free time) using a graph. The horizontal axis represents hours of free time, and the vertical axis represents bushels of grain. Match each graphical feature to its correct economic interpretation.
Interpreting Preferences and Trade-offs
An individual's preferences for free time and grain are represented by an indifference curve. At Point A, with 16 hours of free time, the individual is willing to give up 3 bushels of grain to get one more hour of free time. At Point B, on the same indifference curve but with 20 hours of free time, they are only willing to give up 1 bushel of grain for an additional hour of free time. What does this change from Point A to Point B demonstrate about the individual's preferences?
An individual is offered payment to work extra hours. When they have 18 hours of free time left in a day, they are willing to give up one hour of free time for $20. When they only have 10 hours of free time left, they require $50 to give up one more hour of free time. Based on this information, which statement provides the most accurate economic interpretation of this individual's preferences?
An individual's preferences for a consumption good (measured on the vertical axis) and free time (measured on the horizontal axis) are such that for any given amount of free time, the slope of their indifference curve is identical, regardless of their level of consumption. If this individual receives an unexpected cash inheritance that they do not have to work for, how will this affect the amount of the consumption good they would require as compensation to willingly give up one more hour of free time?
An individual's preferences for a consumption good and free time are represented by indifference curves that are convex (bowed in toward the origin). This shape implies that the individual places a higher value on an hour of free time when they have very little free time remaining compared to when they have an abundance of it.
Modeling Angela's Preferences Using the Same Method as Karim's
The 'More is Better' Principle in Angela's Preferences
Figure 5.3a: Angela's Indifference Curves for Free Time and Grain
Constant Vertical Distance Between Vertically Shifted Indifference Curves
General Principle for Optimal Allocation: MRS = MRT
Learn After
Constant MRS at a Given Level of Free Time as a Consequence of Vertically Shifted Indifference Curves
Measuring Utility Differences in Grain-Equivalent Terms
Analyzing Preferences from a Utility Function
A consumer's preferences for two goods, free time (horizontal axis) and grain (vertical axis), are represented by indifference curves that are vertical shifts of one another. At 15 hours of free time, the consumer requires an additional 5 bushels of grain to move from indifference curve IC1 to a higher curve IC2. Based on this specific property of the preferences, what can be concluded?
Consider a consumer whose preferences for good X (horizontal axis) and good Y (vertical axis) are represented by indifference curves that are vertical shifts of one another. If this consumer needs 10 extra units of good Y to move from indifference curve A to indifference curve B when they have 5 units of good X, then they will need more than 10 units of good Y to make the same move from curve A to curve B when they have 20 units of good X.
Consider a consumer whose preferences for good X (horizontal axis) and good Y (vertical axis) are represented by indifference curves that are vertical shifts of one another. If this consumer needs 10 extra units of good Y to move from indifference curve A to indifference curve B when they have 5 units of good X, then they will need more than 10 units of good Y to make the same move from curve A to curve B when they have 20 units of good X.
Analyzing Consumer Preference Data
Calculating Utility Equivalence with Specific Preferences
An economist studying a consumer's preferences for leisure (horizontal axis) and consumption goods (vertical axis) finds that the consumer's marginal rate of substitution (the amount of consumption goods they are willing to give up for one more hour of leisure) depends only on the amount of leisure they have. It does not change if their quantity of consumption goods changes, holding leisure constant. What must be true about this consumer's indifference curves?
Analyzing a Farmer's Preferences
A consumer's preferences for a good on the horizontal axis and a good on the vertical axis can be described in different ways. Match each description of a preference property with its correct implication.
Applying the Constant Vertical Distance Property
Figure 5.3b: Constant MRS at a Given Level of Free Time