Exercise 6
1. Arthur spends his income on bread and chocolate. He views chocolate as a good but
is neutral about bread, in that he doesn’t care if he consumes it or not. Draw his
indifference map.
2. Giovanni considers tickets to operas at Teatro alla Scala in Milan and to football
matches played by the Italian national football team to be perfect substitues. Show
his preference map.
3. Phil’s quasilinear utility function is 𝑈 (𝑞$ , 𝑞& ) = 𝑙𝑛𝑞$ + 𝑞& . Show that his MRS is the
same on all of his indifference curves at a given q1.
4. Andy purchases only two goods, apples (q1) and kumquats (q2). He has an income of
$40 and can buy apples at $2 per pound and kumquats at $4 per pound. His utility
function is U(q1, q2) = 3q1+5q2. What is his marginal utility for apples, and what is
his marginal utility for kumquats? What bundle of apples and kumquats should he
purchase to maximize his utility? Why?
5. Vasco likes spare ribs q1, and fried chicken q2. His utility function is 𝑈 = 10𝑞$& 𝑞& . His
weekly income is $90, which he spends on ribs and chicken only.
a. If he pays $10 for a slab of ribs and $5 for a chicken, what is his iptimal
consumption bundle? Show his budget line, indifference curve, and optimal
bundle e1 in a diagram.
b. Suppose the price of chicken doubles to $10. How does his optimal consumption
of chicken and ribs change? Show his new budget line and optimal bundle e2 in
your diagram.