Question

1. Draw the indifference curves that you think illustrate the preferences described in the following statements.
a) “I care very little about food, but nice clothes are important.”
b) “Coke or Pepsi makes no difference to me.”
c) “I can’t imagine eating pizza without beer.”
d) “It is important for local governments to have both good fire/police protection and a good school system.”

2. Suppose the consumer's budget constraint is given by 10F + 5S = 100 where F is food and S is shelter. How much food can he buy if he purchases 2 units of shelter?

3. Mr. and Mrs. Whiteway both love Broadway musicals. To see a Broadway musical together it costs them $500, including what they pay for tickets, travel, meals, and a hotel room. Mr. and Mrs. Whiteway make $50,000 per year.
a. Draw a budget constraint for the Whiteways showing the choices available to them in allocating their annual income between seeing Broadway productions and all other goods. (Please put Broadway shows on the horizontal-axis, and all other goods on the vertical-axis. In addition, you can simply assume the unit price of all other goods is $1. This is simply for comparison purposes, and this approach is widely used in most economics analysis.)
b. On the same graph, draw a set of indifference curves that would result in the Whiteways choosing to see ten Broadway musicals a year. Explain in words why you drew the indifference curves the way you did (be sure to explain both the shape and location of the indifference curves).
(Hint: First, at a low number of shows, less than 10, is the indifference curve rather steep or flat? Second, what is the optimum number of shows they choose to see each year? The optimum point should be the tangent point between the indifference curve and the budget line.)

4.   The price of a bottle of beer is $1 and the price of a pizza is $10. The MRS of bottles of beer for pizza expressed by Karl is 5. Has Karl chosen the optimal amount of beer? How do you know? If Karl is not maximizing, what should he do to improve his situation? (Hint: what is the MRS at the consumer optimum point?)

Solution Preview

This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.

Model of Consumer Choice Questions

This is only a preview of the solution. Please use the purchase button to see the entire solution

$50.00

or $1 if you
register a new account!

Assisting Tutor

Related Homework Solutions

Economics Questions
Homework Solution
$19.00
Business
Economics
Taxes
Payments
GDP
Government
Transfers
Purchases
Analysis
Writing
Marginal Propensity
US Residents
Economics Questions
Homework Solution
$50.00
Business
Economics
Equilibrium
Condition
Product
Market
Expenditures
Inventory
Keynesian Cross
Economic Terms (1020 words)
Homework Solution
$35.00
GDP
Real GDP
Nominal GDP
Unemployment Rate
IInflation Rate
Business
Interest Rate
Business
Economics Questions
Homework Solution
$20.00
Business
Economics
Tellico Dam
Prohibition
Congress
Law
Education Loans
Doctor
Money
Tax Codes (430 words)
Homework Solution
$13.00
Business
Economics
Finance
Accounting
Tax Codes
Private Saving
National Saving
Investments
Mortgage
Interest
Financial Crisis
Capital Gain
Tax Rates
Market Values
Get help from a qualified tutor
Live Chats