Economic Problem

CHAPTER 4
INDIVIDUAL AND MARKET DEMAND

EXERCISES

1. An individual sets aside a certain amount of his income per month to spend on his two hobbies, collecting wine and collecting books. Given the information below, illustrate both the price-consumption curve associated with changes in the price of wine and the demand curve for wine.

|Price |Price |Quantity |Quantity |Budget |
|Wine |Book |Wine |Book | |
|$10 |$10 |7 |8 |$150 |
|$12 |$10 |5 |9 |$150 |
|$15 |$10 |4 |9 |$150 |
|$20 |$10 |2 |11 |$150 |

The price-consumption curve connects each of the four optimal bundles given in the table, while the demand curve plots the optimal quantity of wine against the price of wine in each of the four cases. See the diagrams below.

2. An individual consumes two goods, clothing and food. Given the information below, illustrate both the income-consumption curve and the Engel curve for clothing and food.

|Price |Price |Quantity |Quantity |Income |
|Clothing |Food |Clothing |Food | |
|$10 |$2 |6 |20 |$100 |
|$10 |$2 |8 |35 |$150 |
|$10 |$2 |11 |45 |$200 |
|$10 |$2 |15 |50 |$250 |

The income-consumption curve (see diagram at right) connects each of the four optimal bundles