Microeconomics

[s]

1> suppose good 1 is measured along horizontal axis good 2 measured along vertical axis, then a vertical IC implies consumer:

a. is saturated with good 1
b. is saturated with good 2
c. dislikes good 1
d. is saturated with both goods

2> can an IC cross itself?

3>suppose commodity 1 is a good and commodity 2 is a bad. then the ICs satisfy Law of diminishing marginal rate of substitution. True or False?

4>for a 2 commodity consumer suppose good 1 is neutral then the MRS of good 1 for good 2 is positive.True or False?

5>A consumer is saturated with some positive amount of commodity 1 but for commodity 2 which is a good, a saturation point doesnt exist. How do the ICs look?  

[duck]

Hi Shreya.. :)

1) is saturated with good 2

2) No (violation of transitivity)

3) Yes

4)True

5) U-shaped

[s]

hi Duck thank u for the answers ,

just to clarify in Q 5, upto when consumer is not saturated with both commodities IC is downward sloping as both are goods, but beyond a certain +ve amount of good 1 it becomes a bad while good 2 is still a good and so from there ICs are upward sloping. is that right?

[duck]

Yes :) :)

[ritu]

hey duck can u explain in detail answer 4...?????i always get confused with neutral goods..

[duck]

Hi Ritu.. :)

A good is a neutral good  if the consumer does not care about its consumption at all. That is, the consumption of that good will not increase the consumer's utility.

Now, it is given that good 1 is neutral,this implies that additional consumption of good 1 has no impact on total utility Or MU(x) = 0.
So, MRS=0 in this case.

Hint: Just plot horizontal IC and try it out.. :)