Temple University

Department of Economics

Economics 52

Principles of Economics

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Billy Joel, during a stint as a piano man, was asked a number of questions that elicited the following responses. For each response, draw a representative indifference curve. Indicate the direction of increasing utility.

A. "I don't see any difference between Coors and Bud; I just like beer." Hint: Billy is telling us that a glass of Bud is the same as a glass of Coors.

B. "I have no affinity for peanuts, but I love potato chips." Hint: If you give Billy more peanuts he won't feel as though he is any better off. But give him more chips and watch out!

C. "Lima beans and string beans are the same to me. They are both awful." Hint: Both kinds of beans are 'bad'. If you give more of either good to Billy you will make him worse off. Indeed, if you want him to take more lima beans, then you must take away increasing amounts of string beans to leave him at the same level of satisfaction.

D. "My diet consists of pizza and mineral water, both of which I enjoy in moderate quantities. However, when I eat more than 10 slices of pizza per day I become ill." Hint: Both commodities are goods up to a point, after which pizza becomes a bad.