Chapter 10 Indifference Curve Analysis Based on questions 10A.4 and 10A.5, p. 370, H & B 7th edition (but updated)Jake receives an allowance of $10 per week. He spends all of his allowance on ice cream cones and smart water.If the price of ice cream cones is $1. and the price of smart water is $2., draw a graph showing Jake’s budget constraint.Jake buys 8 ice cream cones and 1 smart water. Draw an indifference curve showing Jake’s choice, assuming he has chosen the optimal combination.Suppose the price of ice cream rises to $2. per cone. On this same graph, draw Jake’s new budget line and his new optimal consumption.Suppose Jake’s allowance doubles to $20 per week. Show Jake’s new budget line.Draw a new indifference curve showing how Jake’s consumption of ice cream and smart water will increase.(Note: You can put all of these answers on the same graph, clearly indicating each. You can draw this graph either by hand or on the computer, whichever is easiest.)

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ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Chapter 10 Indifference Curve Analysis

Based on questions 10A.4 and 10A.5, p. 370, H & B 7^th edition (but updated)

Jake receives an allowance of $10 per week. He spends all of his allowance on ice cream cones and smart water.

If the price of ice cream cones is $1. and the price of smart water is $2., draw a graph showing Jake’s budget constraint.
Jake buys 8 ice cream cones and 1 smart water. Draw an indifference curve showing Jake’s choice, assuming he has chosen the optimal combination.
Suppose the price of ice cream rises to $2. per cone. On this same graph, draw Jake’s new budget line and his new optimal consumption.
Suppose Jake’s allowance doubles to $20 per week. Show Jake’s new budget line.
Draw a new indifference curve showing how Jake’s consumption of ice cream and smart water will increase.

(Note: You can put all of these answers on the same graph, clearly indicating each. You can draw this graph either by hand or on the computer, whichever is easiest.)

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