2/3/2021 EPPD1013 MICROECONOMICS 1 SET 2| 1/20202021-Choo Wei Sheng

Course: EPPD1013 MICROECONOMICS 1 SET 2|

Student: Choo Wei Sheng
1/20202021
Instructor: Riayati Ahmad
Book: Perloff: Microeconomics, 8e, Global Edition
Date: 2/3/21
Time: 7:43 PM

Derive and plot Olivia's Engel curve1 for pie if she eats pie only
a la mode and does not eat either pie or ice cream alone (pie 24
and ice cream are complements). 22

Olivia's preferences are illustrated by the indifference curves in 20

the figure to the right. Assume the price of pie, pP , is $0.50 18
and the price of ice cream, pIC , is $1.00. 16

14

Ice Cream
Since pie and ice cream are complements, Olivia will eat pie,
qp , and ice cream, qIC , in fixed proportion, where qp = qIC = q. 12
10
e3 I3
According to the figure, if Olivia consumes 4 pies (qp = 4) and
8 e2
4 units of ice cream (qIC = 4), then Olivia's income is I2
6 e1
$ 6.00 . (Enter a numeric response using an I1
4
integer.)
2
Similarly, if Olivia consumes 6 pies and 6 units of ice cream, L1 L2 L3
0
then her income is $ 9.00 . 0 2 4 6 8 10 12 14 16 18 20 22 24
Pie
Much the same, if Olivia consumes 8 pies and 8 units of ice
cream, then her income is $12.00, from
24
Y = (pP + pIC )q 22

20
Y = (0.50 + 1.00)8
18
Y = (1.50)8
16
Y = $12.00. 14
Y, Budget

Olivia's Englel curve for pie is illustrated in the figure to the 12

right. 10

8
6
4

2
0
0 2 4 6 8 10 12 14 16 18 20 22 24
Pie

24
22

20
18
16

14
Y, Budget

Engel curve
12
10

8
6
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2/3/2021 EPPD1013 MICROECONOMICS 1 SET 2| 1/20202021-Choo Wei Sheng

0
0 2 4 6 8 10 12 14 16 18 20 22 24
Pie

1: Definition
An Engel curve shows the relationship between the quantity demanded of a single good and income, holding prices constant.

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