Microeconomics Assignment 1

Anant Jain

Flame University

ECON201- Microeconomics

Prof. Rituparna Kaushik

Before 2020, Agon used to consume the slow, crowded lanes for single-occupancy-vehicles

of Westeros to travel to work on Interstate 15 in the Kings Landing Area which cost him 30

minutes of time with his family (given). Consider figure 1 where I have represented Agon’s

consumption bundle before 2020 of good 1 being the amount of extra time spent with family

due to travel and good 2 being the coffee and the consumption bundle being (x1, x2).

Figure 1. Consumption bundle of Agon before 2020.

Agon’s consumption before 2020 is at the point A where he spends 0 extra time with his

family and consumes coffee worth ₹2. The shaded region shows the sets of bundles that are

weakly preferred to (x1, x2). For IC1, the averages are preferred to extremes as the averages

lie in the shaded area of weakly preferred sets; hence, IC1 is convex set.

After 2020, Agon has started to use the Aristocrat lanes. Agon says that “Isn’t it worth a

couple of Rupees to spend an extra half-hour with your family?” He continues, “That’s what I

used to spend on a cup of coffee at Starbucks. Now I’ve started bringing my own coffee and

using the money for the toll.” Agon used to spend ₹2 on coffee and he says that he uses this

money for toll. In the first consumption bundle (x1, x2), Agon’s money spent on coffee

reduced to 0 and he saves 30 minutes to spend with his family. Agon is getting to spend more

extra time with his family moving him from Point A to point B where he spends 30 minutes

extra with his family. By moving from point A to B, Agon is moving down and right

involving exchanging good 1 for good 2.

Calculating the rate at which Agon exchanged good 1 for good 2:

Δx 2
¿
Δx 1

2−0
¿
0−30

1
¿−
15

Therefore, the Marginal Rate of Substitution is

1
¿−
15
However, Agon said that he uses the money he used to spend on coffee (₹) for paying the toll

which implies that Agon will use the slow, crowded lanes for single-occupancy-vehicles

when or if the price of the toll is more than ₹2.

Let us consider 2 bundles: x1, x2 and y1, y2. Let the bundle (x1, x2) represent the

consumption from the slow, crowded lanes for single-occupancy-vehicles and bundle (y1, y2)

the consumption of the Aristocrat lanes. X1 is the consumption of coffee in ₹ spent and x2 is

the amount of extra time spent with family in minutes. Y1 will be the cost of the toll for the

Aristocrat lanes in ₹ and y2 will be the amount of extra time spent with family in minutes.

Agon’s preference models are given in Table 1:

S.no. Bundle (x1, x2) Preferred Bundle (y1, y2)

1 (2, 0) ≺ (1.28, 30)

2 (2, 0) ≺ (1.55, 30)

3 (2, 0) (2.27, 30)

4 (2, 0) (2.53, 30)

5 (2, 0) ≺ (1.72, 30)

6 (2, 0) ≺ (2, 30)

Table 1. Agon's bundle preferences.

Agon only strictly prefers the aristocrat lane when the price of the toll is less than ₹2 and

otherwise prefers the slow lane. Agon’s behaviour can be explained by preference-utility-

maximizing. Agon was consuming at point A in IC1 in Fig.1. And given his well-behaved

preference, he gave up on good 1 to consume more of good 2. Hence, his behaviour has been

explained by preference-utility-maximizing.