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日期：2022-08-16 10:25

Tutorial 3: Consumers’ Preferences

ECON 7110: Consumer and Firm Behaviour

The University of Queensland

Semester 2, 2022

Question 1

Three friends, Alice, Bob and Carol, have the following individual preferences over the food they

usually get: Chinese, Indian and Italian.

Alice Bob Carol

Most preferred Chinese Italian Indian

Indian Chinese Italian

Least preferred Italian Indian Chinese

Jointly, they agree to determine their group preference as follows: Cuisine A is preferred to B

if A gets the majority of votes against B in a two-alternative vote.

What is the group’s preference over Chinese and Indian food?

What is the group’s preference over Indian and Italian food?

What is the group’s preference over Chinese and Italian food?

Is the group’s preference over the three cuisines transitive? Why or why not?

Question 2

In a discussion of tuition rates, a university official argues that the demand for admission is

completely price inelastic. As evidence, she notes that while the university has doubled its

tuition (in real terms) over the past 15 years, neither the number nor quality of students applying

has decreased. Would you accept this argument? Explain briefly. (Hint 1: The official makes

an assertion about the demand for admission, but does she actually observe a demand curve?

What else could be going on? Hint 2: Think about the existence of potential substitutes.)

Question 3

Suppose there are only two goods: Beer and Milk. Tom’s preference over bundles of beer and

milk is as follows: For any two bundles A = (bA,mA) and B = (bB,mB) (where b and m denotes

the amount of beer and milk, respectively), A ? B (i.e., “A is at least as good as B”) if and

only if:

Either bA > bB;

Or bA = bB and mA ≥ mB.

In other words, Tom cares, first and foremost, about the amount of beer, but if the two bundles

contain the same amount of beer, then he prefers having more milk to less.

Is Tom’s preference complete? If yes, show why; if no, give an example of two bundles

which Tom cannot compare.

Is Tom’s preference monotone? Strongly monotone?

Does Tom’s preference comply with the property of diminishing marginal rate of substi-

tution?