A consumer has $100 of income to spend on books and other goods (a composite good). Books cost $20 each and the consumer's optimal bundle is to consume purchase three books while spending the rest of the income on the composite good. The consumer is then given a gift of a book. Assume the consumer is unable to sell the book. Use two separate graphs to demonstrate each of the two possible scenarios: a. A consumer that is indifferent between the book gift and a cash gift of $20. b. A consumer that strictly prefers a $20 cash gift to a book.

A consumer has $100 of income to spend on books and other goods (a composite good). Books cost $20 each and the consumer's optimal bundle is to consume purchase three books while spending the rest of the income on the composite good. The consumer is then given a gift of a book. Assume the consumer is unable to sell the book. Use two separate graphs to demonstrate each of the two possible scenarios: a. A consumer that is indifferent between the book gift and a cash gift of $20. b. A consumer that strictly prefers a $20 cash gift to a book.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.7P

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