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Practice Problems


Consumer Behavior in Uncertain Situations

Problem : Kate has $12. Pretzels cost $2 a bag, and soda costs $3 a bottle. Draw her budget constraint. If soda goes on sale for $2 a bottle, what does her new budget constraint look like?

Kate's Old and New Budget Constraints

Problem : Jeannette has $300. DVD's cost $30 and CD's cost $15. Draw her budget constraint for DVD's and CD's. Draw her budget constraint if she has $360.

Jeannette's Old and New Budget Constraints

Problem : J.P.'s indifference curves for beer and movies look like this:

J.P.'s Indifference Curves

Beer costs $4 and movies cost $6. If J.P. has $24, how much of each will he buy?

If you draw in J.P.'s budget constraint, you can see that the optimal point would be at about 2 movies and 3 beers.

Optimizing J.P.'s Purchase

Problem : Draw the indifference curves for cashmere sweaters and moth-eaten sweaters (assuming that moth-eaten sweaters are undesirable and cashmere sweaters are desirable).

Indifference Curves for Normal Undesirable Goods

Problem : Lawrence is looking for tables and chairs. His indifference curves look like this:

Lawrence's Indifference Curves

He has $500 to spend, how many tables and chairs will he buy if chairs cost $50 and tables cost $100?

If you draw in Lawrence's budget constraint, you can see that his optimal combination would be about 3 tables and 4 chairs.

Optimizing Lawrence's Purchase

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