a. On a scale diagram with the quantity of ice cream cones
on the vertical axis and the quantity of magazines on the
horizontal axis, plot and label the various bundles.
b. Suppose that Katie is indifferent between bundles c and
She is also indifferent between bundles d, g, and h, but all
three of these are preferred to c or i. Finally, suppose that,
of the bundles shown in the table, bundle e is Katie’s
favourite. Draw three indifference curves showing this
information.
c. Consider bundles e, f, and g. What can you conclude
about how Katie would rank these bundles?
2. Continue with Katie from the previous question. Katie has a
monthly allowance of $36 that she chooses to divide between
magazines and ice cream cones. Magazines cost $6 each and ice
cream cones cost $4 each.
a. For each of the consumption bundles shown in the table,
compute the total expenditure. Which ones can Katie
afford, and which ones can’t she afford?
b. Draw Katie’s budget line. What is the slope of the line?
c. Given Katie’s monthly budget constraint, which bundle
does she choose to maximize her utility?
3. Debra travels to Mexico and enjoys both burritos and Coronas.
The diagram shows her utility-maximizing choices.
