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6. Suppose that Jones and Smith have each decided to allocate $1000 per year to an

entertainment budget in the form of hockey games or rock concerts. They both like hockey

games and rock concerts and will choose to consume positive quantities of both goods.

However, they differ substantially in their preferences for these two forms of

entertainment. Jones prefers hockey games to rock concerts, while Smith prefers rock

concerts to hockey games.

a. Draw a set of indifference curves for Jones and a second set for Smith.

Given they each like both goods and they will each choose to consume positive quantities of

both goods, we can assume their indifference curves have the normal convex shape.

However since Jones has an overall preference for hockey and Smith has an overall

preference for rock concerts, their two sets of indifference curves will have different slopes.

Suppose that we place rock concerts on the vertical axis and hockey games on the horizontal

axis, Jones will have a larger MRS than Smith. Jones is willing to give up more rock concerts

in exchange for a hockey game since he prefers hockey games. Thus, indifference curves for

Jones will be steeper than the indifference curves for Smith.

b. Using the concept of marginal rate of substitution, explain why the two sets of curves

are different from each other.

At any combination of hockey games and rock concerts, Jones is willing to give up more

rock concerts for an additional hockey game, whereas Smith is willing to give up fewer rock

concerts for an additional hockey game. Since the MRS is a measure of how many of one

good (rock concerts) an individual is willing to give up for an additional unit of the other good

(hockey games), the MRS, and hence the slope of the indifference curves, will be different

for the two individuals.

8. Anne has a job that requires her to travel three out of every four weeks. She has an

annual travel budget and can travel either by train or by plane. The airline on which

she typically flies has a frequent-traveler program that reduces the cost of her tickets

according to the number of miles she has flown in a given year. When she reaches

25,000 miles, the airline will reduce the price of her tickets by 25 percent for the

remainder of the year. When she reaches 50,000 miles, the airline will reduce the price

by 50 percent for the remainder of the year. Graph Anne’s budget line, with train miles

on the vertical axis and plane miles on the

Train Miles

horizontal axis.

The typical budget line is linear (with a constant

slope) because the prices of the two goods do not

change as the consumer buys more or less of each

good. In this case, the price of airline miles

changes depending on how many miles Anne

purchases. As the price changes, the slope of the

budget line changes.

Because there are three

Plane Miles (000)

prices, there will be three slopes (and two kinks)

to the budget line. Since the price falls as Anne flies more miles, her budget line will

become flatter with every price change.

P a g e

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Solution To Selected Questions: Chapter 3 Consumer Behavior Worksheet - Chairat Aemkulwat, 2015 Page 4

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