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Institute of Business Management: Class Activity

1) The document is a class activity for a microeconomics course that contains 7 questions about consumer choice theory and how consumption of goods responds to changes in income and prices. 2) The questions ask students to draw budget constraints and indifference curves for a consumer choosing between wine and cheese, find optimal consumption points, and analyze how consumption would change in response to income increases or price changes. 3) The final question asks if an increase in the price of cheese could lead a consumer to buy more cheese, requiring an explanation of when this counterintuitive result could occur.

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Konainr Raza
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52 views1 page

Institute of Business Management: Class Activity

1) The document is a class activity for a microeconomics course that contains 7 questions about consumer choice theory and how consumption of goods responds to changes in income and prices. 2) The questions ask students to draw budget constraints and indifference curves for a consumer choosing between wine and cheese, find optimal consumption points, and analyze how consumption would change in response to income increases or price changes. 3) The final question asks if an increase in the price of cheese could lead a consumer to buy more cheese, requiring an explanation of when this counterintuitive result could occur.

Uploaded by

Konainr Raza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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INSTITUTE OF BUSINESS MANAGEMENT

Class Activity
Course Title: Microeconomics Course Code: ECO101
Student’s Name
Student ID:

Note: Attempt all questions. Please be neat and clean in writing.

1. A consumer has income of $3,000. Wine costs $3 per glass, and cheese costs $6
per pound. Draw the consumer’s budget constraint. What is the slope of this
budget constraint?

2. Draw a consumer’s indifference curves for wine and cheese. Describe and
explain four properties of these indifference curves.

3. Pick a point on an indifference curve for wine and cheese and show the marginal
rate of substitution. What does the marginal rate of substitution tell us?

4. Show a consumer’s budget constraint and indifference curves for wine and
cheese. Show the optimal consumption choice. If the price of wine is $3 per glass
and the price of cheese is $6 per pound, what is the marginal rate of substitution
at this optimum?

5. A person who consumes wine and cheese gets a raise, so his income increases
from $3,000 to $4,000. Show what happens if both wine and cheese are normal
goods. Now show what happens if cheese is an inferior good.

6. The price of cheese rises from $6 to $10 per pound, while the price of wine
remains $3 per glass. For a consumer with a constant income
of $3,000, show what happens to consumption of wine and cheese. Decompose
the change into income and substitution effects.

7. Can an increase in the price of cheese possibly induce a consumer to buy more
cheese? Explain.

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