Essay
Evelyn Lips' preferences are depicted by the set of indifference curves in the diagram below.Her budget line is also shown in the diagram.Use the information in the diagram to answer the following questions. 
a.Which of the basic assumptions of consumer preferences are violated by E.Lips' indifference curves? Explain.
b.The price of food is $5 per unit.What is E.Lips' income and what is the price of clothing?
c.Show the market basket of food and clothing that maximizes E.Lips' satisfaction.When satisfaction is maximized,has E.Lips equated the marginal rate of substitution (of food for clothing)to the ratio of the prices (of food to clothing)? If so,explain why.If not,explain why not.
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a. The assumption that consumers always ...View Answer
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