Suppose the only characteristic of beer that a consumer cares about is alcohol content. Currently, Bud Light and Miller Lite both have the same alcohol content. a. Illustrate the consumer's indifference curves in a graph with ounces of Miller Lite on the horizontal and ounces of Bud Light on the vertical axis. b. Suppose that the producers of Bud Light lower the price of Bud Light. How will your answer to (a) change?

Question

c. Suppose that the producers of Bud Light lower the alcohol content of their beer by 50%. How will your answer to (a) change?
d. Since we identify tastes with indifference maps, would you say that the consumer's tastes have changed in (b) or (c)?
e. How could we change the units we use to measure Miller Lite in order to get the indifference map in (c) to again look like the one in (a)?

What will be an ideal response?

Answer 1

a. The indifference curves are straight lines with slope of -1.


b. The answer will not change --- prices affect budgets, not tastes.


c. The indifference curves will again be straight lines, but this time with slope of -2.


d. While the indifference map has changed in (c), the consumer's tastes have not. Rather, the nature of the underlying product has changed --- and the same tastes that care only about alcohol content therefore give rise to an indifference map that looks different.


e. If we changed the units of Miller Lite to "half-ounces", we would again have indifference curves that are straight lines with slope of -1.