The figure above shows a preference map for Sarah, who likes ...

[APUS57]

The figure above shows a preference map for Sarah, who likes hamburgers and milk shakes.
 
  a) Which two combinations contain the same amount of hamburgers but different quantities of shakes?
  b) Which combination(s) does Sarah most prefer? Why?
  c) Which combination(s) does Sarah least prefer? Why?
  d) Between which combinations is Sarah indifferent? Why?

Question 2

When the price of toilet paper falls by 20 percent, the quantity of toilet paper demanded rises by 10 percent. Calculate the price elasticity of demand. Is the demand for toilet paper elastic, inelastic, or unit elastic?
 
  What will be an ideal response?

[ntsoane kedibone]

Answer to Question 1

a) Combinations a and b have the same amount of hamburgers but different amounts of milk shakes.
b) Sarah most prefers combination d because it is on the highest indifference curve.
c) Sarah least prefers combination a because it is on the lowest indifference curve.
d) Sarah is indifferent between combinations b and c because they are on the same indifference curve.

Answer to Question 2

Price elasticity of demand = 10/-20 = -0.5 . Since the absolute value of the price elasticity is less than one, the demand for toilet paper is inelastic.