How can utility numbers change while preference rankings stay the same?
Utility ranks bundles, while MRS measures the local trade-off the consumer accepts.
Follow the cause and effect
Rank bundles using completeness and transitivity.
Find MUx and MUy, then calculate MRS at the bundle.
Use only strictly increasing transformations to preserve the ranking.
The model you are using
Conditions for this model
The example has positive quantities of two goods and convex preferences; MRS denotes a positive magnitude.
The exam trap
Do not interpret utility differences quantitatively when utility is ordinal.
Connect the reasoning to the graph
What changes
- Farther indifference curves are preferred for two goods, and absolute slope equals MRS.
What stays fixed
The example has positive quantities of two goods and convex preferences; MRS denotes a positive magnitude.
Keep these conditions throughout the comparison; change only what the case above specifies.
What to inspect
Use only strictly increasing transformations to preserve the ranking.
Compare before and after, and locate the conclusion on the graph.
5 MINUTES · TRANSFER THE IDEA
Can you explain it without the lesson?
Draw U=xy through (4,9), find another bundle on the curve, and compare both MRS values.