Solution To Selected Questions: Chapter 3 Consumer Behavior Worksheet - Chairat Aemkulwat, 2015 Page 5
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615. Jane receives utility from days spent traveling on vacation domestically (D) and days
spent traveling on vacation in a foreign country (F), as given by the utility function U(D,F) =
10DF. In addition, the price of a day spent traveling domestically is $100, the price of a day
spent traveling in a foreign country is $400, and Jane’s annual travel budget is $4000.
a. Illustrate the indifference curve associated with a utility of 800 and the
indifference curve associated with a utility of 1200.
Domestic Travel
The indifference curve with a
40
utility of 800 has the equation
10DF = 800, or D = 80/F. To
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plot it, find combinations of
D and F that satisfy the
equation (such as D = 8 and F
30
= 10). Draw a smooth curve
through the points to plot the
indifference curve, which is
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the lower of the two on the
graph to the right. The
20
indifference curve with a
utility
of
1200
has
the
equation 10DF = 1200, or D
15
= 120/F. Find combinations
of D and F that satisfy this
10
equation
and
plot
the
indifference curve, which is
the upper curve on the graph.
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U = 1200
Budget Line
U = 800
0
0
5
10
15
20
25
30
35
40
Foreign Travel
b. Graph Jane’s budget line on the same graph.
If Jane spends all of her budget on domestic travel she can afford 40 days. If she spends
all of her budget on foreign travel she can afford 10 days. Her budget line is 100D + 400F
= 4000, or D = 40 4F. This straight line is plotted in the graph above.
c. Can Jane afford any of the bundles that give her a utility of 800? What
about a utility of 1200?
Jane can afford some of the bundles that give her a utility of 800 because part of the U =
800 indifference curve lies below the budget line. She cannot afford any of the bundles
that give her a utility of 1200 as this indifference curve lies entirely above the budget line.
P a g e
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