Assume that Rachel is attending university and likes to eat a meal at lunchtime. Assume that she has three options of where to eat: the university refectory, a nearby pub or a nearby restaurant. Apart from price, she takes into account the quality of the food and the pleasantness of the surroundings when choosing where to eat.

Sketch her indifference map for the two characteristics, food quality and pleasantness of surroundings. Now, making your own assumptions about which locations provide which characteristics, the prices they charge and Rachel’s weekly budget for lunches, sketch the rays for the three locations and draw a weekly efficiency frontier. Mark Rachel’s optimum consumption point.

Now illustrate the following (you might need to draw separate diagrams):

(a)  A rise in the price of meals at the local pub, but no change in the price of meals at the other two locations.

(b)  A shift in Rachel’s tastes in favour of food quality relative to pleasantness of surroundings.

(c)  The refectory is refurbished and is now a much more attractive place to eat.