Draw indifference curves for two standard goods, coconuts and pineapples. Describe the properties of these indifference curves. What happens along the indifference curve? Why don’t you want to consume at points below the indifference curve? Would you want to consume at a point beyond an indifference curve? Next, on a separate diagram, draw a budget constraint and an indifference curve showing a consumption bundle between the two goods. Explain the economics behind the graphical representation of the intersection between the budget constraint and the indifference curve. Following this, we would like you to draw an indifference map for a consumer that prefers extremely overbalanced consumption bundles.
Draw indifference curves for two standard goods, coconuts and pineapples. Describe the properties of these indifference curves. What happens along the indifference curve? Why don’t you want to consume at points below the indifference curve? Would you want to consume at a point beyond an indifference curve?
Next, on a separate diagram, draw a budget constraint and an indifference curve showing a consumption bundle between the two goods. Explain the economics behind the graphical representation of the intersection between the budget constraint and the indifference curve.
Following this, we would like you to draw an indifference map for a consumer that prefers extremely overbalanced consumption bundles.
You will recall that, unlike an extreme consumption bundle, a balanced consumption bundle consists of a small amount of all goods and services: as you will have indicated graphically for the example above. Alternatively, an extreme bundle, is a bundle which consists of only one good or service. Consider how this kind of preference can be modelled through indifference curves and draw it, comparing it with the balanced consumption bundle example above.
In carrying out these activities, please ensure that you draw the diagram(s) with care (for example, by labelling the axes appropriately) and that you explain the reasoning fully.
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