Chapter EMD, Problem 2DS

To determine

The question requires us to determine the application of budget constraint and indifference curve model in the case of consumption of free products.

Explanation of Solution

The budget constraint puts a limit on the consumption bundle. For example, suppose an individual has $100 to spend on food and cloth, he can’t consume any bundle of food and clothes that exceed $100 after multiplying from their respective prices.

In the given case, both activities are free, which means consumers can consume an infinite amount of these goods without considering their budget constraints. So, budget constraint is not applicable in this case.

The indifference curve represents the different combinations of goods with the same utility level. As consumers are getting the goods at a free price, their utility can’t be derived in terms of higher or lower utility without knowing their preferences.

Therefore, for the given case the budget line and indifference curve model is not applicable.