Due by 11:59 PM Friday September 16 via by Blackboard Assignments

# Concepts and Critical Thinking

## Question 1

How can we use utility functions, which have actual numbers that can be measured and compared, to model preferences and still say with a straight face that preferences are subjective? Hint: what does it mean for a utility function to be ordinal or cardinal? Why can multiple utility functions describe the same preferences?

## Question 2

Describe, in your own words, what the marginal rate of substitution between two goods means. How is it different from the slope of the budget constraint?

## Question 3

Describe, in your own words, what happens at the optimum consumption point. Why is it the optimum? What does the equality of the slope of the indifference curve and the slope of the budget constraint mean, in English?

# Problems

## Question 4

### Part E

Find the optimal combination of $$x$$ and $$y$$ where the consumer maximizes utility subject to income. Label this point $$A$$ on the graph.

## Part F

How much utility does the consumer earn at the optimum?

## Footnotes

1. Sandwich, I suppose!↩︎

2. Hint: think about the relationship between these goods. It may not be a “typical” equation.↩︎