Professional Documents
Culture Documents
EXERCISE 7 (Indifference Curve Approach)
EXERCISE 7 (Indifference Curve Approach)
EXERCISE NO. 7
Theory of Consumer Choice : Indifference curve approach
1. A consumer has an income of Php 3,000.00 per period. He spends it on food and clothing, with
prices at Php 150.00 per unit and Php100.00 per unit, respectively.
a. Draw the consumer’s budget line, placing food on the Y axis and clothing on the X axis.
Label it as BL1.
b. Suppose the price of food doubles, show what happens to the budget line. Using the same
graph in letter a, sketch the new budget line and label it as BL 2.
c. Starting from the initial income and price levels, suppose the consumer’s income falls by
20%, draw the new budget line in the same graph used in a and b and label it as BL 3.