2:42 Learning Activity 5 1. Suppose a consumer has a budget for food items of $20 per week and spends this money on two goods, hamburgers and pizzas. Suppose hamburgers cost $5 each and pizzas cost $10. Put the quantity of hamburgers purchased per week on the horizontal axis and the quantity of pizzas purchased per week on the vertical axis. Draw the budget line. What is its slope? Answer: Slope = 2.0/4.0 = 0.5 2.0 Pizza 1.5 1.0 0.5- 0.5' 1.0 1.5 2.0' 2.5 3.0 3.5 4.0 Hamburgers 2. Suppose the consumer in part 1 above is indifferent among the combinations of hamburgers and pizzas shown. Draw an indifference curve passing through the combinations shown, and label the corresponding points A, B, and C. Combination Hamburgers/week Pizzas/week A B w 1/2 0 3 Answer: Indifference curve drawn in the above graph 3. The budget line is tangent to indifference curve at B. Explain the meaning of this tangency. Answer: The slope of budget line is equal to the slope of indifference curve. The consumer will maximize utility at this point