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N_P_Key_Ch_9A - Chapter 9A Indifference Curves and Budget...

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Unformatted text preview: Chapter 9A Indifference Curves and Budget Constraints Some concepts and vocabulary Indifference Indifference curve Budget constraint Bliss point Significance of the slope of the budget constraint Significance of the slope of the indifference curve Practice Problem- Suppose you are eating in a world with only two goods: nachos and fruit punch. The price of nachos is $3 and the price of fruit punch is $1. Draw the appropriate graph and budget constraint if you have $12 to spend on food and drink. Draw in a representative indifference curve showing the highest—valued combination you could reach with your limited budget. Now suppose that the price of nachos goes down to $2. On the same graph, draw your new budget constraint. Draw an appropriate indifference curve to find your new highest- Valued consumption bundle. ...
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