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common mistakes quiz 1.pdf

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Department
Economics
Course
ECO204Y5
Professor
Kathleen Wong
Semester
Fall

Description
ECOO204: Comm mon Mistakees on Quiz 1 1. Incorrect Conceppts Normal ggood: as income increases, the quantity demandeed increases. Typical goods: ? no economic mmeaning Solution: If you meant pea soup and books are not perfect complemeents or perect substitues, just saythat. Extreme preferences: - Many of you incorrectly ssaid it impes pea soup and books aare perfect ubstitutes - Recall the in-class example of fishnd coconuts: I really lie fish, I g0 utility fmom coconuts – willing to gie up all my coconuts to buy more fish o Indiffference curves are drawn: vertical o How m many fish are you willng to give up to gain 1 oconut? Nonne! o So ext treme preferences are exactly opposite of perfct substituses  Perfect sbstitutes: xed willingneess to giveup one good for the othr  Sometimes leads to corner solution, but alsopossible to onsume combinatioons of thewo goods  Worksheet t 2, Questin 7: Both extreme prefereences and perfect substtutes are reresented wih straight lnes, but thyy don’t meean the same thing. 2. Failure to read all of the iormation givven or undeerstand it’s an assumpt tion - Made assump ptions for economic badss or concave functions - Argued that it was possible to have oncave func tions - If information is given to you in thproblem before the underlined statment, it’s tue o Descr ribes the scnario that ou must evalluate the sttement by 1 3. Hasty answers a nd repeatingg answers frrom memor ry leads to unnecessary y work - discussion off using all f Liesel’s come, maxim mizing utiliy, price changes o the staatement was simply abou ut the shape of the curve - repetition ofsolutions from tutorialworksheet o questi ion 1: many students dreew and discuussed the arrow and thatt the direcon of the arrow points owards highher levels of utility o questi ion 2: calculated utilitfor Hans’ iniitial and al consumpti ion bundle 4. Improoper Assum ptions, Explanations Assumpt tions not alowed: Assumin ng that the sual laws of diminishing marginal uttility applyher indiffeences curves will be downw ward sloping and convexx-shaped beccause… Correct assumption, no explanatiion: The statement is true if Leisel Meminger doeesn’t view pea soup and books as perfect complemments or perffect substittes. Therefore, Liesel Meminger’s indifference curves are downwar rd sloping and convex shhaped. Good exp planation, o assumptionn: True, the indifferences curves ae downward d sloping (sloping is negative due tothe fact that units ofone goods arre given up to gain units of the otr). It is conex-
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