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Please review all of the notes, but pay particular attention to the fundamentals used to derive the shapes and equations associated with the BC, IC and optimal point.
Practice problems.
1. Use the consumer choice graph (BC, IC, optimal points) to derive an individual's demand curve for good x. (hint: a demand curve is simply the relationship between price and quantity)
2. Think about our consumer behavior graph. Can you figure out what combination of "types of goods" (normal/inferior) that cannot be drawn for a given price change? What is the logical reason for why not?
3. Fill in the table of information below using the other information from the table and the knowledge that the individual is utility maximizing and is definitely LESS happy in week 3 versus week 2. (They can only purchase in discrete quantities.)
X
Y
Px
Py
I
Week 1
0
5
4
20
Week 2
1
6
28
Week 3
2
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