Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly...

Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly drink one more. After drinking 10 beers, Homer is so drunk that he does not notice any additional bottle he drinks (that is, the benefit of an additional bottle of beer is zero). Drinking more than 17 beers is beyond the processing capability of Homer’s liver and any additional bottle makes him sick (beer is no longer a “good” for Homer). Homer’s preferences for donuts are somewhat similar. As long as he eats less than 15 donuts, an additional donut increases his utility. If he eats more than 15 donuts, then additional donuts make him worse off. Sketch Homer’s indifference curve passing through point (8 donuts, 8 beers). Sketch Homer’s indifference curve passing through point (15 donuts, 16 beers) Hint 1: Homer does not have “standard” indifference curves. That is, his indifference curves could be downward or upward sloping, convex, or concave, or only locally convex or concave. Hint 2: For each of the above questions, it is possible to (and you should!) sketch Homer’s entire indifference curves. Homer consumes beer and donuts. Beer is an inferior good. One day the price of donuts falls. Use a graph (measuring quantity of donuts on the horizontal axis) to show what happens to the budget line. Show the substitution and income effect of the change of the price of donuts on Homer’s beer consumption. Explain how does your diagram show that beer is an inferior good. Does Homer end up drinking more or less beer than before? Justify your answer carefully.

Expert Solution

an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent.

The consumer is indifferent (or equally satisfied) with any combination of good X and good Y along the curve. The further out a curve is from the origin, the better in terms of consumer utility. Why does the IC take this shape? That X and Y are unrelated just means that they each fulfill a different purpose for the consumer.

Please do see the image been uploaded in the answer for the IC asked

Imagine that X is beer, and Y is donut.

As the curves show, you always want a mix of beer and donut and you’ll not be satisfied having zero of either one. Notice how none of the curves ever touch either the y- or the x-axes. That said, looking towards the ends of the curve, you can see that you can be satisfied with just a little beer if you consume a whole lot of donut, and vice versa.

Beer is an inferior good.

Inferior good means whose demand decreases when consumer income rises (or demand increases when consumer income decreases),

One day the price of donuts falls. Now beer is very expensive relative to donut, So you end up consuming a lot more donut for a limited decrease in beer.

Rahul Sunny answered 2 years ago

Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly...

Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly drink one more. After drinking 10 beers, Homer is so drunk that he does not notice any additional bottle he drinks (that is, the benefit of an additional bottle of beer is zero). Drinking more than 17 beers is beyond the processing capability of Homer’s liver and any additional bottle makes him sick (beer is no longer a “good” for Homer). Homer’s preferences for...

Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly...

Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly drink one more. After drinking 10 beers, Homer is so drunk that he does not notice any additional bottle he drinks (that is, the benefit of an additional bottle of beer is zero). Drinking more than 17 beers is beyond the processing capability of Homer’s liver and any additional bottle makes him sick (beer is no longer a “good” for Homer). Homer’s preferences for...

Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly...

Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly drink one more. After drinking 10 beers, Homer is so drunk that he does not notice any additional bottle he drinks (that is, the benefit of an additional bottle of beer is zero). Drinking more than 17 beers is beyond the processing capability of Homer’s liver and any additional bottle makes him sick (beer is no longer a “good” for Homer). Homer’s preferences for...

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Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly...

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