Choice and Cost Benefit Analysis > Indifference Curves and Budget Constraints

Normal Preferences

Ralph consumes only beer and pizza, and he likes both goods. Please answer the following questions about his preferences.

  1. Suppose that Ralph becomes sated with beer when his consumption is 8 cans and that beyond that he regards more beer as bad. Sketch some of his indifference curves.
  2. If Ralph is currently consuming 6 cans of beer and 3 pizzas and he is willing to give up two cans of beer to get an additional pizza, what is the slope of his indifference curve?
  3. Now suppose Ralph is never sated but he only consumes pizza and beer together: he drinks three cans of beer with each pizza. What might his indifference curves look like? Briefly explain why the curves look the way you drew them.
Solution
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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 08/17/2016