Consumer Theory
Daniel spends all his money on only two goods: chocolates (good 1) and milkshakes (good 2). We have information about his purchases, income and prices for 4 weeks: A, B, C and D. For each week, the budget line and the goods bought are shown on the graph below.
a) Suppose that Daniel’s preferences are transitive and satisfy "more is better". Shade all the bundles that you are certain are worse for Daniel than bundle A in one colour, and all the bundles that you are certain are better for Daniel than bundle A in a different colour. (You can use different patterns instead of colours.) Indicate which is which. Explain.
Indifference curve is the locus of different possible combinations of two goods that a person can consumer which provides him the same level of satisfaction.
An indifference curve is downward sloping convex to the origin. One of the property of indifference curve is transitivity.
Step by step
Solved in 2 steps with 1 images
