Micro doubts!

[Homer Simpson]

a) Plot indifference curve and indicate direction of preference -

1) A consumer is saturated with some positive amount of commodity 1 but for commodity 2, which is a good, saturation point doesnt exist.

2) Both goods are bads

3) The MRS of good 2 for good 1 is increasing

b) Prove/Disprove: Suppose commodity 1 is good and commodity 2 is bad. Then do the indifference curves satisfy the law of diminishing MRS?

(c) Suppose good 1 is measured along horizontal axis and goos 2 is measured along the vertical axis. The vertical indifference curve implies that consumer is -

(i) saturated with good 1
(ii) saturated with good 2
(iii) Dislikes good 1
iv) Saturated with both

[L14]

a.2. It will look like the normal indifference curve(ie. both goods) except the preference will be inwards.
3. I think positive slope(one good and the other bad)
b. I guess no.
c. saturated with good 2

[The Villain]

Q2...direction is south west.
wt about quest 3...Tsuki pls explain.

[RajEco]

I think q3 says that IC is concave-

dy/dx = fx/fy  is increasing. Which is in the case of concave ICs.

[RajEco]

Can anyone explain, what is implied by saturation point ?
Does this mean MU=0  or MU is negative ?

[phelps.phan]

@Raj, I'm not very confident abt the difference between satiation and saturation. But let me try. For satiation more of a good beyond satiation is bad, so his pref becomes inwards towards the satiation point. For saturation, more of a good has no effect after the saturation point.

For qn c since the IC is vertical good 2 has no effect on the consumer preferance, so we can assume he is saturated with good 2, and his preference is entirely based on good 1. Also going by the options I think option c is reasonable. But had there been an option that good 2 is neutral I would have gone for that.