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    Grams of Yogurt: U U U U U

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    Prateek Babbewala
    The document describes indifference curves representing different consumer preferences for peanut butter and jelly. It provides examples of indifference curves for preferences where: 1) The consumer gets the same satisfaction from an ounce of peanut butter as from 2 ounces of jelly 2) The consumer likes peanut butter but is indifferent to jelly 3) The consumer likes peanut butter but dislikes jelly 4) The consumer prefers 2 ounces of peanut butter for every ounce of jelly It also includes indifference curves corresponding to each scenario.

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    Grams of Yogurt: U U U U U

    Uploaded by

    Prateek Babbewala
    395 views3 pages
    The document describes indifference curves representing different consumer preferences for peanut butter and jelly. It provides examples of indifference curves for preferences where: 1) The consumer gets the same satisfaction from an ounce of peanut butter as from 2 ounces of jelly 2) The consumer likes peanut butter but is indifferent to jelly 3) The consumer likes peanut butter but dislikes jelly 4) The consumer prefers 2 ounces of peanut butter for every ounce of jelly It also includes indifference curves corresponding to each scenario.

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    The document describes indifference curves representing different consumer preferences for peanut butter and jelly. It provides examples of indifference curves for preferences where: 1) The consumer gets the same satisfaction from an ounce of peanut butter as from 2 ounces of jelly 2) The consumer likes peanut butter but is indifferent to jelly 3) The consumer likes peanut butter but dislikes jelly 4) The consumer prefers 2 ounces of peanut butter for every ounce of jelly It also includes indifference curves corresponding to each scenario.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    395 views3 pages

    Grams of Yogurt: U U U U U

    Uploaded by

    Prateek Babbewala
    The document describes indifference curves representing different consumer preferences for peanut butter and jelly. It provides examples of indifference curves for preferences where: 1) The consumer gets the same satisfaction from an ounce of peanut butter as from 2 ounces of jelly 2) The consumer likes peanut butter but is indifferent to jelly 3) The consumer likes peanut butter but dislikes jelly 4) The consumer prefers 2 ounces of peanut butter for every ounce of jelly It also includes indifference curves corresponding to each scenario.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    1. Alexa likes ice cream, but dislikes yogurt.

    If you make her eat another gram of


    yogurt, she always requires two extra grams of ice cream to maintain a constant
    level of satisfaction. On a graph with grams of yogurt on the vertical axis and
    grams of ice cream on the horizontal axis, graph some typical indifference curves
    and show the directions of increasing utility.

    Grams
    U2 U3>U2>U1
    of U1
    Yogurt
    3
    U3

    2 Directions of
    Increased
    Satisfaction

    1 2 3 4 5 6 Grams of
    Ice Cream

    2. Draw indifference curves to represent the following types of consumer preferences.


    a) I like both peanut butter and jelly, and always get the same additional satisfaction
    from an ounce of peanut butter as I do from 2 ounces of jelly.
    b) I like peanut butter, but neither like nor dislike jelly.
    c) I like peanut butter, but dislike jelly.
    d) I like peanut butter and jelly, but I only want 2 ounces of peanut butter for every
    ounce of jelly.

    In the following pictures, U2>U1.

    a)
    Jelly

    U1 U2
    Peanut Butter
    1 2

    b)
    Jelly

    U1 U2

    Peanut Butter

    c)
    Jelly U1
    U2

    Peanut Butter

    d)
    Jelly
    U1 U2

    2
    1
    Peanut Butter
    2 4

    3. Karl’s preferences over hamburgers (H) and beer (B) are described by the utility
    function: U(H, B) = min(2H, 3B). His monthly income is I dollars, and he only
    buys these two goods out of his income. Denote the price of hamburgers by PHand
    of beer by PB. Derive Karl’s demand curve for beer as a function of the exogenous
    variables.

    I
    Answer: B =
    (1.5PH + PB )
    4. Ginger’s utility function is U(x, y) = x2y, with associated marginal utility functions
    MUx= 2xy and MUy= x2. She has income I = 240 and faces prices Px= $8 and Py= $2.
    a) Determine Ginger’s optimal basket given these prices and her income.

    Answer: (x, y)=(20, 40) with a utility of 202(40)=16,000

    5. Ann’s utility function is U(x, y) = x + y, with associated marginal utility functions


    MUx= 1 and MUy= 1. Ann has income I = 4.
    a) Determine all optimal baskets given that she facesprices Px= 1 and Py= 1.
    b) Determine all optimal baskets given that she faces prices Px= 1 and Py= 2.

    Answer a): when Px = 1 and Py = 1 all pairs of x and y such that x + y = 4 are optimal
    baskets.

    Answer b): Optimal consumption in this case is at a corner point. Since the price of x is
    smaller than the price of y and marginal utility of reach good is the same, consumer is better
    off purchasing only x. (Another way to see this is to note that MU¬X/PX = 1/1 > MU¬Y/PY
    = ½.) Hence, the optimal basket consists of 4 units of x and zero units of y.

    6. The demand for beer in Japan is given by the following equation: Qd= 700 − 2P − PN+
    0.1I, where P is the price of beer, PNis the price of nuts, and I is average consumer
    income.
    a) What happens to the demand for beer when the price of nuts goes up? Are beer and
    nuts demand substitutes or demand complements?
    b) What happens to the demand for beer when average consumer income rises?

    Answer:
    a) When the price of nuts goes up, the beer quantity demanded falls for all levels of price
    (demand shifts left). Beer and nuts are demand complements.
    b) When income rises, quantity demanded increases for all levels of price (demand shifts
    rightward).

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