Economics 2261A/B Chapter 4: Chapter 4 Utilities Answers
26 Apr 2014
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In the previous chapter, you learned about preferences and indi erence curves. Here we study another way of describing prefer- ences, the utility function. A utility function that represents a person"s preferences is a function that assigns a utility number to each commodity bundle. The numbers are assigned in such a way that commodity bundle (cid:2)) if and only if the (cid:2) (x, y) gets a higher utility number than bundle (x (cid:2)). If a consumer has the utility function (cid:2) consumer prefers (x, y) to (x. U(x1, x2), then she will be indi erent between two bundles if they are assigned the same utility. If you know a consumer"s utility function, then you can nd the indi erence curve passing through any commodity bundle. An important and convenient fact is that the slope of an indi erence curve is minus the ratio of the marginal utility of good 1 to the marginal utility of good 2.
