Question

[Uses the Indifference Curve Approach] With the quantity of popcorn on the vertical axis and the quantity of ice cream on the horizontal axis, draw indifference maps to illustrate each of the following situations. (Hint: Each will look different from the indifference maps in the appendix, because each violates one of the assumptions we made there.) a. Larry's marginal rate of substitution between ice cream and popcorn remains constant, no matter how much of each good he consumes. b. Heather loves ice cream but hates popcorn.

Short answer

Larry’s indifference map contains parallel straight lines moving away from the origin, each representing higher levels of satisfaction for Larry, who sees popcorn and ice cream as perfect substitutes. Heather’s indifference map contains L-shaped curves lying more horizontally (towards ice cream axis) indicating her preference for ice cream over popcorn. As the curves are more towards the right, Heather’s level of satisfaction increases.

Step-by-step solution

Construct Larry's Indifference Map

Larry's marginal rate of substitution between ice cream and popcorn remains constant. This implies that he sees ice cream and popcorn as perfect substitutes. Hence, the indifference map for Larry is a collection of straight lines moving out from the origin. Each straight line represents an indifference curve. As each curve moves away further from the origin, it represents higher levels of satisfaction or utility for Larry.

Analyze Larry's Indifference Map

It can noted that each curve on Larry’s indifference map is parallel to each other, indicating that his willingness to trade ice cream for popcorn or vice versa remains the same at different levels of consumption. The basic principle of an indifference map, the farther the curve from the origin, the higher the level of satisfaction, still holds true for Larry.

Construct Heather's Indifference Map

Heather loves ice cream and hates popcorn. Hence, her indifference curves will be L-shaped. The horizontal line of the L-shaped curve represents different amounts of ice cream while the vertical line represents different amounts of popcorn. Since Heather hates popcorn, all her indifference curves will touch the horizontal axis (Ice Cream) representing that she prefers any quantity of ice cream to any quantity of popcorn.

Analyze Heather's Indifference Map

In Heather's indifference map, the farther the L-shaped curve is to the right (more ice cream), the higher is her level of satisfaction. She doesn’t derive any extra satisfaction from having more popcorn, thus the vertical line of L doesn’t move with higher indifference curves. As a result, her curves lie more in the horizontal direction which represents more of ice cream.