Name: Hannah Simpson Student ID: 300445606
Answer the questions below by filling in the boxes highlighted in light blue and completing the chart provided.
2. Add the budget line to the chart. Note: c1 is on the horizontal axis.
(i) U1 (using the equation for IC1) and,
(ii) U2 (using the equation for IC2).
i) bundle A
ii) bundle B.
6. Compare bundle A and bundle B. In particular, comment - in the box for Q6 - on the levels of expenditure and utility.
7. Based on the chart and Q6, state the utility maximising bundle (c1*, c2*) in the blue highlighted cells for Q7.
8. Explain - in the box for Q8 - why the bundle you have identified is a utility maximising bundle.
Table 1: Parameter table Table 2: Plot points Qn 1 Qn 3(i) Qn 3(ii)
a 1 c1: c2: BC IC1 IC2
b 1 0 24.0 48.0 44.8
d 6 2 22.0 30.4 27.0
p1 4.00 4 20.0 24.3 22.0
p2 4.00 6 18.0 20.1 18.0
m 96 8 16.0 16.8 14.9
Utility level 1 (U1) 41.6 10 14.0 14.2 12.4
Utility level 2 (U2) 40.2 12 12.0 12.0 10.4
14 10.0 10.2 8.7
Utility function: U=6(1 c1^0.5 + 1 c2^0.5) 16 8.0 8.6 7.2
IC1: c2=(6.93-c1^0.5)^2 18 6.0 7.2 6.0
IC2: c2=(6.69-c1^0.5)^2 20 4.0 6.0 4.9
Chart for Qn 2 and 4:
1. This question uses the budget line equation to calculate a set of plot points for a budget line. Using the prices (p1 and
p2) and level of income (M) in Table 1 (Parameter table), calculate a set of points for the budget line for the range of c1
shown in Table 2 (Plot points). Put your calculations for c2 in the cells highlighted in light blue that correspond to each
value of c1 listed. If you calculate a negative number, leave it blank.
See the article on the following sheet (How to add data to a chart) for help on adding data to a chart (using the Select
Data Source dialog box).
3. This question refers to the utility function and indifference curve equations below the Parameter table. Use the
equation for the indifference curve for a given level of utility to calculate a set of plot points. Each set of plot points is for
one indifference curve (IC1 and IC2). Note, the formula for the first point (when c1=0) for the first indifference curve has
been entered in the table. Using the given levels of utility indicated below (U1 and U2), calculate a set of points; put your
answers for 3(i) and (ii) in Table 2 Plot points for the range given.
4. Plot the two indifference curves using the plot points calculated in the question above (as a scatter chart with a smooth
line). (I.e. update/add the two IC data series in your chart.)
5. Consider the two bundles A and B. Note: each bundle is a pair of quantities, (c1, c2). Calculate the expenditure for the
each of the two bundles. Put your answers in the blue highlighted cells for Q5.
0 5 10 15 20 25
0
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IC-BC plot
Budget constraint
IC1
IC2
