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Quantifying Altruistic Preferences
An individual's preferences can be represented by an indifference curve plotting their own monetary payoff on the horizontal axis and another person's payoff on the vertical axis. At a certain point, this individual is willing to give up $10 of their own money in exchange for the other person gaining $15, and their satisfaction remains unchanged. Calculate the slope of the indifference curve at this point and briefly explain what this value represents in terms of the individual's willingness to trade.
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An individual's altruism can be measured by the trade-off they are willing to make between their own payoff and another person's. At a specific point on Alex's indifference curve, which plots his payoff on the horizontal axis and another person's (Ben's) payoff on the vertical axis, the slope is -5. To maintain the same level of satisfaction, what is the minimum amount Ben must gain if Alex sacrifices $1 of his own payoff?
Quantifying Altruistic Preferences
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An analyst observes that an individual's indifference curve, plotting their own payoff on the horizontal axis and another person's payoff on the vertical axis, is very steep. The analyst concludes: 'This steepness indicates a high degree of altruism, because it shows the individual requires a large increase in the other person's payoff to be compensated for a small sacrifice of their own.' Is the analyst's conclusion logically sound?
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