Question

a)Draw the indifference curves for nickels and dimes. Would they ever have a non-constant slope? Explain.

b) John is indifferent between canned soup and fresh soup (i.e., canned soup and fresh soup are perfect substitutes). Canned soup sells for $1 per serving and fresh soup sells for $2 per serving. Assuming that John has allocated $4 toward soup, how will he spend it? Explain your answer by drawing John's budget line and indifference curves.

Answer 1

a) One nickel is worth 5 cents while one dime is worth 10 cents . So 2 nickel make a dime. The slope would always be constant because the exchange value of nickel and dime is always same. Given below is the indifference curve for nickel and dime

Here the parallel lines are the indifference curves between dime and nickel.

b) John is indifferent between canned soup and fresh soup , but the prices of both is different. So when he allocates $4 for soups, he can consume either 4 of canned soup because its price is$1 or can consume 2 fresh soups which would be his budget line corner points. Anywhere on the budget line would also be his optimal solution. (Like 2 canned soup and 1 fresh soup)

Given below is the indifference curve and budget line is John.

The parallel lines are the indifferent curves and the budget line is marked on the graph

(You can comment for doubts)