Question

1. Draw a set of indifference curves for the following pairs of goods with explanations :

1. Hamburgers and carrots for a vegetarian who neither likes nor dislikes meat. (Vegetarians do not eat meat.)
2. Peanut butter and jelly for an individual that will not eat peanut butter sandwiches or jelly sandwiches, but loves peanut butter and jelly sandwiches made with two parts peanut butter and one part jelly.
3. Tickets for Knott's Berry Farm (KBF) and Universal Studios (US) for a tourist that believes that KBF and US are perfect substitutes.

Answer 1

Consider the image above for the indifference curves in the three different cases.

a. Here, hamburgers are a neutral good. The consumer will only care about his/her satisfaction of carrots and would derive utility only from the consumption of carrots. As a result, the indifference curves will be lines parallel to the Y-axis, i.e. where Hamburgers are plotted. To increase utility, he/she must consume more carrots.

b. The consumer considers peanut butter and jelly to be complimentary goods. He will only eat sandwiches with 2PB and 1J, therefore the L-shaped indifference curves will be centered at the line 2PB=J. If J > 2PB, he will derive the utility of only J = 2PB. Further, the MRS at PB > J is 2, making the line steeper, while at PB < J the MRS is one, implying a straight vertical line.

c. Since the tourist believes that KBF and US are perfect substitutes, he will care only about the overall consumption of them, not preffering one over the other. As a result, the indifference curves in this case will be straight lines with a slope of -1.