Question

For the following sets of goods draw two indifference curves, U1 and U2, with U2 > U1. Draw

each graph placing the amount of the first good on the horizontal axis. Clearly label U1 and U2.

a)Hot dogs and

chili (the consumer likes both and has a diminishing marginal rate of

substitution for hot dogs with chili).

b)Sugar and Sweet ’N Low (the consumer likes both and will accept an ounce of Sweet ’N

Low or an ounce of sugar with equal satisfaction).

c)Peanut butt

er and jelly (the consumer likes to consume these goods together: exactly two

ounces of peanut butter for every ounce of jelly)

Answer 1

a) Diminishing MRS means that the indifference curve is convex.


b) Sugar and Sweet N Low are perfect substitutes. Indifference curve is linear and downward sloping with slope of -1.


c) Peanut butter and jelly are perfect complements.