Indifference Curves and Budget Constraints > Tie Dye and Earth Shoes

Solution

  1. Susie regards the goods as perfect complements. Since she always chooses Qd = 2*Qs, we can solve for the Q's by inserting that equation into her budget constraint:

    M = Pd*Qd + Ps*Qs
    M = Pd*(2*Qs) + Ps*Qs
    M = Qs*(2*Pd + Ps)
    Qs = M/(2*Pd + Ps)
    Qd = 2*Qs = 2*M/(2*Pd + Ps)

    Plugging in Susie's income and the prices she faces shows that she consumes 4 dresses and 2 pairs of shoes. The graph is shown below.

  2. Using the demand equations from above, but with her new income, she now consumes 6 dresses and 3 pairs of shoes:

  3. Inserting her original income and the new prices into her demand equations shows that she will consume 5 dresses and 2.5 pairs of shoes:

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Peter J Wilcoxen, The Maxwell School, Syracuse University
 Revised 11/02/2004