Explore BrainMass

Budget Constraint - Indifference Curve of Imperfect Substitutes

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Please help with the following problems. Provide diagrams and step by step calculations.

Josh has $100 available for school supplies, S, and food, F, from Meijer (Local general merchandise store). The price of each unit of school supplies is $1 and each unit of food is $1. Josh spends $10 on 10 units of school supplies and $90 on 90 units of food.

a) Draw the budget constraint. (Put School supplies, S, on the X axis and Food, F, on the Y axis). Draw the indifference curve that includes (S = 10, F = 90). S and F are imperfect substitutes.

b) Meijer sends you a coupon for $20 which can be used only for school supplies. Draw the new budget constraint. Is Josh better off? Would he prefer a general $20 coupon (can be used for school supplies or food) to the school supply coupon? Show this on your graph. (Be sure that your graph is consistent with your answer.)

© BrainMass Inc. brainmass.com October 25, 2018, 7:24 am ad1c9bdddf

Solution Summary

The following problem helps with problems involving budget constraints. Step by step calculations are provided for each.

See Also This Related BrainMass Solution

Budget Constraint, Substitutes or Complements, and an Indifference Map

For each case below:
1) State if the goods in the bundles are "perfect substitutes," "perfect complements," or "imperfect substitutes" and 2) Draw 3 curves that could represent an indifference map for a consumer.

(A) The bundles includes left shoes and right shoes

(B) The bundles includes 8 ounce frozen orange juice and 12 ounce frozen orange juice

(C) The bundles includes rice and potatoes

View Full Posting Details