Question

Determine whether each of the following statements is TRUE or FALSE and write a short explanation for your answer.

Assume there are two goods in the world, apples, and oranges. If Adam has a utility of 5 for apples and 10 for oranges, while Ben has a utility of 10 for apples and 20 for oranges.

1. We can say that Adam enjoys apples more than oranges.
2. We can say that Ben enjoys oranges more than apples.
3. We can say that Ben enjoys apples more than Adam does.
4. We can say that Ben enjoys oranges more than Adam does.
5. Since the utility of Ben is just 2 times the utility of Adam, the two utilities represent the same preference.

Answer 1

1) False, Adam does not enjoy apples more than oranges, since the utility he gets from oranges is more than utility he gets from Apple.

2) True, it is true that Ben enjoys oranges more than apple, since oranges give him higher utility then apples.

3) False, we can not compare the utility by two different individuals, since they both have different way to give utility.

4) False, eventhough by one look it's visible that Ben gives more utility to oranges. But the utility of two individuals can not be compared, it's ordinal not cardinal

5) True, the two utilities represent the same preferences because both the individual prefer apple more than oranges .But the preference can not be quantified as in how much more they prefer apple to oranges .