Chapter Four,Consumer Choice, 2007 Pearson Addison-Wesley. All rights reserved.,42,Figure 4.1 Bundles of Pizzas and Burritos Lisa Might Consume,(a),30,25,15,Z, Pizzas per semester,25,20,15,10,5,d,a,b,e,c,f,A,B,(b),30,25,15,Z, Pizzas per semester,25,20,15,10,d,a,b,I,1,e,c,f, 2007 Pearson Addison-Wesley. All rights reserved.,43,Figure 4.1 Bundles of Pizzas and Burritos Lisa Might Consume (contd),(c),30,25,15,Z, Pizzas per semester,25,20,15,10,d,I,0,I,1,I,2,e,c,f, 2007 Pearson Addison-Wesley. All rights reserved.,44,Figure 4.2 Impossible Indifference Curves,(a) Crossing,Z, Pizzas per semester,I,1,I,0,a,b,e,(b) Upward Sloping,Z, Pizzas per semester,I,a,b, 2007 Pearson Addison-Wesley. All rights reserved.,45,Figure 4.2 Impossible Indifference Curves (contd),a,b,(c) Thick,Z, Pizzas per semester,I, 2007 Pearson Addison-Wesley. All rights reserved.,46,Figure 4.3 Marginal Rate of Substitution,(a) Indifference Curve Convex to the Origin,5,3,8,1,1,1,1,2,0,2,3,3,4,5,6,Z, Pizzas per semester,a,b,c,d,I,(b) Indifference Curve Concave to the Origin,5,7,1,1,2,0,2,3,3,4,5,6,Z, Pizzas per semester,a,b,c,I, 2007 Pearson Addison-Wesley. All rights reserved.,47,Figure 4.4 Perfect Substitutes, Perfect Complements, Imperfect Substitutes,(a) Perfect Substitutes,1,2,3,4,Pepsi, Cans per week,1,0,2,3,4,I,1,I,2,I,3,I,4,(b) Perfect Complements,1,2,3,Pie, Slices per week,1,2,3,0,I,1,I,2,I,3,a,d,e,c,b, 2007 Pearson Addison-Wesley. All rights reserved.,48,Figure 4.4 Perfect Substitutes, Perfect Complements, Imperfect Substitutes (contd),(c) Imperfect Substitutes,Z, Pizzas per semester,I, 2007 Pearson Addison-Wesley. All rights reserved.,49,Application (Page 83) Indifference Curves Between Food and Clothing,Clothing per year,I,4,I,3,I,2,I,1, 2007 Pearson Addison-Wesley. All rights reserved.,410,Figure 4.5 Utility and Marginal Utility,MU,Z,10,9,8,7,6,5,4,3,2,1,Z, Pizzas per semester,0,130,(b) Marginal Utility,20,D,U,=,20,Utility function,U,(10,Z,),D,Z,=,1,10,9,8,7,6,5,4,3,2,1,Z, Pizzas per semester,0,350,250,(a) Utility,230, 2007 Pearson Addison-Wesley. All rights reserved.,411,Table 4.1 Allocations of a $50 Budget Between Burritos and Pizza, 2007 Pearson Addison-Wesley. All rights reserved.,412,Figure 4.6 Budget Constraint,Opportunity set,50,=,Y,/,p,Z,L,1,(,p,Z,= $1,Y,= $50),25,=,Y,/,p,B,20,10,10,0,30,Z, Pizzas per semester,a,b,c,d, 2007 Pearson Addison-Wesley. All rights reserved.,413,Figure 4.7 Changes in the Budget Constraint,(a) Price of Pizza Doubles,Loss,50,L,1,(,p,Z,= $1),L,2,(,p,Z,= $2),25,25,0,Z, Pizzas per semester,(b) Income Doubles,Gain,100,L,3,(,Y,=,$100),L,1,(,Y,=,$50),50,25,50,0,Z, Pizzas per semester, 2007 Pearson Addison-Wesley. All rights reserved.,414,Page 91 Solved Problem 4.2,10,0,12,Water, Thousand gallons per month,Budget line,Quota,A,B, 2007 Pearson Addison-Wesley. All rights reserved.,415,Figure 4.8 Consumer Maximization,(a) Interior Solution,Budget line,10,20,25,50,30,10,0,Z, Pizzas per semester,I,1,I,2,I,3,d,f,c,e,a,g,A,B,(b) Corner Solution,Budget line,25,50,Z, Pizzas per semester,I,1,I,2,I,3,e, 2007 Pearson Addison-Wesley. All rights reserved.,416,Page 95 Solved Problem 4.3,SUVs per decade,1,L,B,l,L,N,e,N,e,B,1, 2007 Pearson Addison-Wesley. All rights reserved.,417,Figure 4.9 Optimal Bundles on Convex Sections of Indifference Curves,(a) Strictly Concave Indifference Curves,Z, Pizzas per semester,e,d,I,2,I,1,I,3,e,d,I,2,I,1,(b) Concave and Convex Indifference Curves,Z, Pizzas per semester,Budget,line,Budget,line, 2007 Pearson Addison-Wesley. All rights reserved.,418,Page 98 Solved Problem 4.4,American meals per year,a,f,L,A,L,F,I,1,I,2, 2007 Pearson Addison-Wesley. All rights reserved.,419,Figure 4.10 Food Stamps Versus Cash,Y,Y,+,100,Y,+,100,0,100,Food per month,Budget line with,food stamps,Budget line with cash,Original,budget line,A,B,f,d,e,Y,C,I,1,I,2,I,3,