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Explaining Willingness to Trade
Imagine an individual who currently has 10 slices of pizza and only 1 can of soda. They state they would be willing to give up 3 slices of pizza to get one more can of soda. Now, consider a different situation where the same individual has 2 slices of pizza and 8 cans of soda. Assuming this person's preferences are convex, explain why they would likely be willing to give up fewer than 3 slices of pizza to get one more can of soda in this second scenario. Your explanation should focus on the underlying principle that convex preferences represent.
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Science
Economy
CORE Econ
Social Science
Empirical Science
Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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Activity: Algebraic Verification of Convexity for Karim's Preferences
A student is indifferent between two consumption bundles for a weekend: Bundle X, consisting of 10 hours of video gaming and 2 hours of studying, and Bundle Y, consisting of 2 hours of video gaming and 10 hours of studying. A third option, Bundle Z, consists of an exact average of the first two: 6 hours of video gaming and 6 hours of studying. If this student's preferences exhibit the standard property of being convex, how would they rank Bundle Z relative to the other two?
Evaluating a Trade Proposal
Explaining Willingness to Trade
An individual's preferences for coffee and donuts are represented by a standard, downward-sloping indifference curve. Consider two bundles of goods on this same curve: Bundle A consists of 10 cups of coffee and 1 donut, while Bundle B consists of 2 cups of coffee and 5 donuts. Assuming this individual's preferences are convex, which statement accurately describes their willingness to trade?
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A consumer has many apples and very few oranges. As they acquire more and more oranges, they become willing to trade away an increasingly larger number of apples for each additional orange. This pattern of behavior indicates that the consumer has convex preferences.
An individual has convex preferences for two goods, Pizza (on the vertical axis) and Soda (on the horizontal axis), as represented by a single, downward-sloping indifference curve that is bowed towards the origin. Consider three points on this curve: Point A is located high on the curve (many Pizzas, few Sodas), Point B is in the middle, and Point C is located low on the curve (few Pizzas, many Sodas). Match each point to the statement that accurately describes the consumer's willingness to trade at that location.
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