Question: Suppose that Thurston a color blind consumer has 80

Suppose that Thurston, a color- blind consumer, has $ 80 to spend on either pink or lime- green sweaters. Thurston does not care what color sweater he wears but deems it very important to buy as many sweaters as possible with the $ 80. Pink sweaters cost $ 40 each and lime- green ones cost $ 20 each.
a. Draw Thurston’s budget line and indifference map. What is Thurston’s optimal consumption choice?
b. A sale on pink sweaters begins. If a consumer buys two pink sweaters at the regular price, he or she can get two additional pink sweaters for free. Two pink sweaters must be purchased to get the deal. Otherwise, prices are unchanged. With the sale, depict Thurston’s new budget line and preferred consumption point.

Sale on SolutionInn
  • CreatedNovember 14, 2014
  • Files Included
Post your question