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?