ECON101: Principles of Microeconomics (2021.A.01)

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