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Suppose you consume only two types of goods: DVDs and clothing. You have $300 each week to spend on these two goods, and you cannot
Suppose you consume only two types of goods: DVDs and clothing. You have $300 each week to spend on these two goods, and you cannot save money from week to week. The price of each DVD is $30, and the price of each unit of clothing is also $30. The following graph shows four different indifference curves (I1,I2,I3, and I4) that represent your preferences between clothing and DVD. On the following graph, use the blue points (circle symbol) to draw the budget constraint you face, given prices and income. Then use the black point (cross symbol) to indicate the optimal consumption bundle of clothing and DVDs, given these various indifference curves. (Note: Dashed drop lines will automatically extend to both axes.) Suppose that your grandmother gives you five DVDs for Christmas. With the gift, you can afford a total of units of clothing and 5 DVDs without spending any money on the DVDs. And if you don't spend any money on clothing, you can afford a total of DVDs and zero units of clothing
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