1. The slope of indifference curves depends on the taste. Person A loves yoghurt and likes pizza while Person B loves pizza and likes yoghurt. Show the above persons' preferences on the same graph.

2. Information about preferences can be either ordinal or cardinal. Discuss.

3. Paul derives utility only from CDs and DVDs. His utility function is U =

i) Sketch Paul's indifference curves for U = 5, U = 10, and U = 15.

ii) Suppose Paul has $200 to spend and that CDs cost $5 and DVDs cost $20. Draw Paul's budget constraint on the same graph as his indifference curves.

iii) Suppose Paul spends all of his income on DVDs. How many can he buy?

iv) What is Paul's utility?

iv) Show that Paul's income will not permit him to reach the U = 20 indifference curve.

v) If Paul buys 5 DVDs, how many CDs can he buy? What is his utility?

vi) Use a carefully drawn graph to show that the utility calculated in part (v) is the highest Paul can achieve with his $200.

vii) Assume Paul's income increased by $100 while price of both the items remained unchanged. How many of each of the goods would he buy to maximise his utility?

4. Neha's income is $300 per month. She spends all of it on tickets to concerts and films. A concert ticket (C)costs $15 and a film ticket(F) costs $10. She substitutes film tickets with concert tickets. After 2 months the price of film ticket increased to $20 while concert ticket and her income remained unchanged.

i) Show the income effects and substitution effects due to price changes on the graph.

ii) Is film tickets inferior goods or normal goods? Justify your answer.

5. Mr. Ratule operates a shoe shop in Valelevu, Nasinu. His Total Revenue function is:

TR=60P - 3P^2; where P is the Price of each unit charged.

i) At what price and quantity would total revenue be the highest?

ii) What would happen to total revenue if the price is $15?

6. The utility function given U= (X, Y). Good Y is composite good. Derive the demand function for good X.