Joe's indifference map for lobster and soda is shown in the above ...

[nmorano1]

Joe's indifference map for lobster and soda is shown in the above figure along with his budget line. Will Joe choose point a? Explain your answer in terms both of MRS and the level of utility.
 
  What will be an ideal response?

Question 2

Consider a world with two income earners and an income tax. Individual A earns 25,000 and pays 1,000 in taxes. Individual B earns 100,000 and pays 4,000 in taxes. Which of the following best classifies the income tax system in this world?
 
  a. proportional
  b. progressive
  c. regressive
   d. sumptuary

[gabrielle_lawrence]

Answer to Question 1

Joe will not choose point a. Since the slope of his budget line tells us that he must give up only 9 sodas to get a lobster, Joe will wish to buy more lobsters and less soda than bundle a provides. From a utility standpoint, Joe will not choose point a because another bundle that lies on a higher indifference curve is obtainable.

Answer to Question 2

a