Problem 1 Problem 2

• I = 1000 PM = 20 PP = 5 Draw indifference curves to represent the

• Where: I: income; PM: price of meat; PP: price
of potato
1) Budget equation? Graph?
2) TU = ( M – 2 ) P
M: quantity of meat, P: quantity of potato
Which consumption possibility to maximize
TU?
3) Write new budget equation when PP = 10.
Which consumption possibility to maximize
TU?
following descriptions of consumer
preferences:
1) I can’t taste the difference between apple
and orange, but I like them both
2) I only like orange and never eat apple
3) Apple and orange are better mixed, although
I don’t care too much about the proportions

Problem 3
Problem 4
Draw 2 typical ICs for each of the following cases.
Describe the MRS in each case: Graph the following budget lines:
1) Name-brand aspirin and generic ( thuốc phiên bản, a) 10 F + 20 C = 400
ngược với thuốc đặc trị) aspirin for a consumer who b) 5 F + 10 C = 400
considers the two goods equal in every way.
c) 10 F + 10 C = 400
2) Right gloves and left gloves for a consumer who
d) 20 F + 20 C = 400
only wants to wear gloves in pairs.
3) Right gloves and left gloves for a rock star who Compare a) to b), a) to c), and a) to d). Which
regards right gloves as useless. That is, it does not comparisons represent income changes
matter to him whether he has right gloves or not, and which represent price changes.
since he only wears left gloves.

Problem 5
1) For the case of perfect complements, draw a
budget line and a family of ICs. What is the
consumer’s most preferred market basket?
2) For the case of perfect substitutes, draw a
budget line and a family of ICs. What is the
consumer’s most preferred market basket?
(Hint: The ICs, which are straight lines in this
case, can have a different slope than the
budget line)