Tim, Graham, and Dana all have different preferences over red and white wine, which are described below (in what follows, we let R denote the quantity of red wine and W denote the quantity of white wine):

Tim always prefers more wine over less wine, but he has no strict prefer- ence whether the wine is red or white. That is, Tim is always indifferent between one glass of red or one glass of white.

Graham loves red wine the more red wine the better. But he doesnt like white wine all else equal, he prefers less white wine to more.

Dana has well-behaved preferences and her indifference curve through the point (R,W) = (1,4) is described by the equation, W = 1 .

2 R2

(a) For Tim, draw an indifference curve through the point (R,W) = (2,3). In your graph, place W on the vertical axis and R on the horizontal axis. Label your graph, including the intercepts and the slope of the indifference curve.

(b) Tims marginal rate of substitution (MRS) is always equal to what?

(c) Draw one possible indifference curve for Graham. Place W on the ver- tical axis and R on the horizontal axis. Fill in the blanks: Grahams indifference curve slopes (upwards or downwards) indicating that his MRS is (positive or negative).

(d) Based on the information above, can you determine whether Graham prefers A = (R,W) = (2,2) or B = (R,W) = (3,3)? If so, which bundle does he prefer?

(e) Compute Danas MRS at the point (R,W) = (12,4). Fill in the blank: At the point (12,4), Dana is willing to give up small units of W in exchange for 1 small unit of R.

(f) Consider three bundles: A = (R,W) = (1,4), B = (R,W) = (5, 17), and 248

C = (R,W) = (2,41). For Dana, indicate whether A B, A B, or B A. Then do the same for bundles A and C and bundles B and C.