4- An indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. Food B Clothing a) Danyal is obsessed with food and clothes. Assume you have no knowledge of the budget line, what point would Danyal prefer to be at. b) Why can't two indifference curves not intersect, explain and illustrate your answer. c) As we move from point c to f. who's marginal rate of substitution declines.

1. Income and substitution effects Musashi and Rina Xiang live in Dallas and enjoy going out to fancy restaurants for dinner and to coffee shops for breakfast. On the following graph, the purple curves U₁ and U₂ represent two of their indifference curves for dinners and breakfasts. They have $800 per month available to spend on eating out. The price of a breakfast is always $10. Each labeled point represents the tangency between a budget constraint and the corresponding indifference curve. BREAKFASTS 26 0 better I worse 02 BC, 1 5 I 10 DINNERS H Fancy Dinners Substitution Effect Income Effect -U₂ U₁ The initial budget constraint (BC₁) shows the Xiangs' budget constraint when the price of a fancy dinner is $160. At this price, Musashi and Rina would choose to consume two dinners. BC Suppose that the price of a fancy dinner decreases to $40, shifting their budget constraint to BC2, which represents a new relative price of four breakfasts per dinner. (Hint: The blue line labeled H is…

5. The elasticity of substitution will be a lower number: (a) The less curved is the indifference curve (b) The more curved is the indifference curve (c) The greater the income elasticity of demand of the good on the horizontal axis (d) The greater the degree of substitutability between the two goods (e) If tastes are both homothetic and quasilinear

1. Jim's preferences for pears and apples can be summarized by the following utility function: U(Xa,Xp)=XaXp where xa is the quantity of apples and xp is the quantity of pears. a) Draw an indifference curve for Jim by calculating a series of bundles that all produce the same level of "utility" and plotting them. Interpret the slope of the indifference curve (the marginal rate of substitution). b) Calculate the formula for Jim's marginal rate of substitution, as a function of apples and pears consumed.¹ c) What happens to the numeric value of Jim's marginal rate of substitution along an indifference curve (i.e., holds his utility constant) as he increases the number of pears he consumes and decreases the number of apples? For example, compare his MRS for a bundle consisting of 9 apples and 4 pears to his MRS for a bundle consisting of 9 pears and 4 apples and interpret the change. d) Suppose something increases Jim's desire for apples (for example, apples are found to reduce the risk of…