Indifference Curve Analysis

Follow this resource to learn more about the concept of indifference curves. Make sure to answer the "Try It" quiz questions that show you the correct answer.

4. The Individuality of Indifference Curves

4.1. Try It

Jacob is taking a two week vacation where he will spend most of his time and budget at either amusement parks or day spas. He has set aside a budget of $1,200 dollars for his two favorite activities. During the first week he spent $200 at amusement parks and $400 at day spas for a total of $600. During the second week he spent $400 at amusement parks and $200 at day spas. If Jacob found both of his weeks equally enjoyable, was he maximizing his enjoyment subject to his budget constraint? Why or why not?

    • No. Jacob would have achieved greater utility by consuming a more equal balance of amusement parks and day spas during both weeks.
    • No. Utility maximization is only possible if the indifference curve does not intersect the budget constraint at any point.
    • Yes. Because the indifference curve is convex it can cross budget constraint at multiple points

Muhammad is consuming the optimal quantity of movies and popcorn at Point A when the price of movies suddenly drops. Which of the following points represents a plausible new utility-maximizing equilibrium after the price drop?

    • Point C
    • Point D
    • Point B