2) Consider two consumers, Tom and Robert, choosing between goods 1 and 2. Both have the same income of $60 (M = 60) and the prices of goods 1 and 2 are Pi =si0 and Pa = $7.5. Their initial budgets and indifference curves are below. Tom Robert Good 2 Good 2 13 13 12 12 11 11 10 10 7. 6. 3. U. 12345678 9 10 11 12 13 Good 1 12 3456789 1011 12 13 Good 1 a) What do the shape of the indifference curves tell us about the relative preferences for good 1 and good 2 for each consumer. b) Demonstrate on the graphs above how the optimal decisions of both change if their incomes increase to $100 (M-S100). Discuss. e) Suppose that incomes did not change. Demonstrate on the graphs below how the optimal decisions of both change if the price of good 1 decreases to Pi-$5. Discuss
2) Consider two consumers, Tom and Robert, choosing between goods 1 and 2. Both have the same income of $60 (M = 60) and the prices of goods 1 and 2 are Pi =si0 and Pa = $7.5. Their initial budgets and indifference curves are below. Tom Robert Good 2 Good 2 13 13 12 12 11 11 10 10 7. 6. 3. U. 12345678 9 10 11 12 13 Good 1 12 3456789 1011 12 13 Good 1 a) What do the shape of the indifference curves tell us about the relative preferences for good 1 and good 2 for each consumer. b) Demonstrate on the graphs above how the optimal decisions of both change if their incomes increase to $100 (M-S100). Discuss. e) Suppose that incomes did not change. Demonstrate on the graphs below how the optimal decisions of both change if the price of good 1 decreases to Pi-$5. Discuss
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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3.
Transcribed Image Text:2) Consider two consumers, Tom and Robert, choosing between goods 1 and 2. Both have the same
income of $60 (M = 60) and the prices of goods 1 and 2 are Pi = $10 and P2 = $7.5. Their initial
budgets and indifference curves are below.
Tom
Robert
Good 2
Good 2
13
13
12
11
11
10
10
9.
7.
4
3.
2.
123 4 5 6 7 8 9 10 11 12 13 Good 1
123 4 5 6 7 8 9 10 11 12 13 Good 1
a) What do the shape of the indifference curves tell us about the relative preferences for good 1 and
good 2 for each consumer.
b) Demonstrate on the graphs above how the optimal decisions of both change if their incomes
increase to $100 (M -s100). Discuss.
c) Suppose that incomes did not change. Demonstrate on the graphs below how the optimal
decisions of both change if the price of good 1 decreases to Pi = $5. Discuss
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