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Problem on Budget constraints

James and Louisa each have an income of $30, which they each spend on tomatoes and all other goods.  They buy tomatoes at their local farmers market, which charges $3 per pound.  Define the units for all other goods so that their price is $1 per unit.  Their preferences may be different, but assume they each have indifference curves with the “standard” shape, and that they each choose to consume less than 5 pounds of tomatoes at this price.

a. The farmers market decides to offer a new quantity discount.  The first 5 pounds of tomatoes bought by any consumer still cost $3 per pound, but any additional quantity of tomatoes can be purchased for $1.50 per pound.  Carefully draw James’ and Louisa’s new budget constraints on the two sets of axes on the next page, putting tomatoes on the x-axis and clearly indicating the quantities at the intercepts. (Note:  their budget constraints will be identical since they have the same income and face the same prices/discounts)

b. In response to the quantity discount, James now purchases more than 5 pounds of tomatoes, but Louisa continues to buy less than 5 pounds. Draw indifference curves on their respective graphs that are consistent with the descriptions of each of their consumption decisions.

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