A common marketing tactic among many liquor stores is to offer their clientele quantity (or volume) discounts. For instance, the second-leading brand of wine exported from Chile sells in the United States for $15 per bottle if the consumer purchases up to eight bottles. The price of each additional bottle is only $8. If a consumer has $200 to divide between purchasing this brand of wine and other goods, in the graph below, show the consumer's budget set when liquor stores use this marketing tactic and the price of other goods is $1. Instruction:If the opportunity sethas any kinks, be sure to plot all the points where the kinks occur, in addition to the points where the line crosses the intercepts. Graph the budget set from where the Quantity of Wine= 0 to where it crosses the X-axis.

Assuming a consumer has standard indifference curves (resembling those as shown in following figure), will a consumer ever purchase exactly eight bottles of wine?

"The horizontal axis is labeled X. The vertical axis is labeled Y. There are 3 identical, equidistant and parallel upward-facing curves in the quadrant. From bottom to top they are labeled as follows: I, II, III. The curves begin at the top of the quadrant go down and to the right in decreasing steepness and end at the left of the quadrant."

multiple choice

• Yes - some consumers may find a purchase of eight bottles optimal.
• No - a consumer will always be better off by purchasing an amount other than eight bottles.