Question

In: Economics

John is indifferent between canned soup and fresh soup, that is, he derives as much pleasure...

John is indifferent between canned soup and fresh soup, that is, he derives as much pleasure (utility) from consuming x servings of canned soup as he does from consuming x servings of fresh soup. Canned soup sells for $1 per serving and fresh soup sells for $ 2 per serving. Assuming that John has $10 to spend on soup, how will he allocate his budget between the two types of soup? Explain your answer by drawing John's budget line and indifference curves.

Solutions

Expert Solution

Answer: For canned soup (C) and Fresh soups (F)

=> x Units of C can be substituted by x units of F

Price of canned soup Pc =$1 per serving

Price of Fresh soup PF =$2 per serving

Maximum budget for soups m= $10

The budget line formula here is:

10 = Pc * C + PF​​​​​​​ * F

=> 10 = 1 * C + 2 * F

=> 10 = C + 2 F

=> C = 5 - 0.5 F

He will spend all $10 on canned soup. As he gets the same utility with consuming same quantity of goods, .i.e canned soups are perfect substitute of fresh soups. Here exists a corner solution, He will get the maximum utilization by consuming the maximum units of soups.

He can have 10 servings of canned soup within the given budget of $10, while he can only purchase 5 units of fresh soup in $10.

hence he will maximize his utility by spending $10 all on canned soup.

----------------------------------------------------------------------------------------------------


Related Solutions

On a night out with friends at the viaduct, john has too much to drink. He...
On a night out with friends at the viaduct, john has too much to drink. He loses his balance and falls, hitting his head on the concrete floor. He is assessed by a paramedic for a possible concussion. Assume normal physiology and anatomy in addressing the specific questions below Section1(200 words) 1-Describe the anatomical structures and locations that produce and remove cerebrospinal fluid from the central nervous system? Section 2 (250words) 2A. Describe the structure of the blood brain barrier...
6. John has a car he wants to sell. His goal is to get as much...
6. John has a car he wants to sell. His goal is to get as much as he can for the car (profit-maximizer). He lists the car in the local paper with no price – just “highest bidder” and announces a time to come by if interested. 3 potential buyers show up. Paul is willing to pay $1,000 for the car. George is willing to pay $2,000 for the car. Ringo is willing to pay $8,000 for the car. George...
John Madison needs $339,200 in 10 years. How much must he invest at the end of...
John Madison needs $339,200 in 10 years. How much must he invest at the end of each year, at 9% interest, to meet his needs? (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 458,581 Investment Amount ? ---------------------------------------------------------------------------- Steve Fillmore’s lifelong dream is to own his own fishing boat to use in his retirement. Steve has recently come into an inheritance of $430,800. He estimates that the boat he wants will...
John finances 234000 with a 15/5 ballon mortgage at 5.3%. How much will he pay for...
John finances 234000 with a 15/5 ballon mortgage at 5.3%. How much will he pay for principal and interest over the life of the loan? A. 246,823.20 B. 289,222.05 C. 289,998.48 D. 340,282.80
John Beckett enjoys vegetables, so much so that he has given uphis full-time job as...
John Beckett enjoys vegetables, so much so that he has given up his full-time job as a lawyer to concentrate on growing and marketing organic vegetables. He started growing vegetables 20 years ago in his back garden and eventually became fully self-sufficient in supplying vegetables for the family. Partly bored with his legal job and tempted by an attractive severance package, John decided he would try to establish his own vegetable supply business. Eighteen months ago he looked around for...
Beckett Organics John Beckett enjoys vegetables, so much so that he has given up his full-time...
Beckett Organics John Beckett enjoys vegetables, so much so that he has given up his full-time job as a lawyer to concentrate on growing and marketing organic vegetables. He started growing vegetables 20 years ago in his back garden and eventually became fully self-sufficient in supplying vegetables for the family. Partly bored with his legal job and tempted by an attractive severance package, John decided he would try to establish his own vegetable supply business. Eighteen months ago he looked...
Your friend John has never learned Economics. He wants to know the differences between a change...
Your friend John has never learned Economics. He wants to know the differences between a change in the quantity demanded and a change in demand. He also wants to know the differences between a change in the quantity supplied and a change in supply. a) Explain to John the differences between a change in the quantity demanded and a change in demand. b) Explain to John the differences between a change in the quantity supplied and a change in supply.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT