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An island economy produces only two goods, apples and bananas. There are five people (A,B, C, D, and E) living on the island with these preferences:

a. A likes apples but does not care whether she has more or fewer bananas.

b. B likes to eat exactly 2 apples with each banana he consumes.

c. C likes both apples and bananas. For C, the MRS between apples and bananas does not vary with the quantities of apples and bananas he consumes.

d. D does not like apples (they make her ill), though she does like bananas.

e. E knows his limit. He likes bananas up to a point, but if he eats more than 9 he gets sick. He likes apples.

For each of these five individuals, construct several representative indifference curves with apples on the vertical axis and bananas on the horizontal axis. Indicate the relative levels of utility (in which direction does utility increase). Explain the shape of the indifference curves and relate them to the MRS.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M91837839

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