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# (Solved): 4. Deriving demand from an indifference map Rosa recently moved to Detroit, where they developed a t ...

4. Deriving demand from an indifference map Rosa recently moved to Detroit, where they developed a taste for drinking Americanos and eating danishes. Assume throughout this problem that the price of an Americano is held constant at \$4. On the following graph, the purple curves (I1 and I2 ) describe two of Rosa's indifference curves. The lines BC1 and BC2 represent two budget constraints. Points X and Y show Rosa's optimal consumption bundles subject to the budget constraints. 0 2 4 6 8 10 12 14 16 18 20 20 18 16 14 12 10 8 6 4 2 0 AMERICANOS DANISHES I 1 BC 1 I 2 BC 2 X Y Given the preceding graph and knowing the price of an Americano is \$4, Rosa's available income for Americanos and danishes is \$ . Using the income amount you just computed, complete the following table by finding the price of a danish when BC1 represents Rosa's budget constraint and when BC2 represents her budget constraint. Then indicate the quantity of danishes consumed in each of those scenarios. When Rosa's budget constraint is... Price Consumption (Dollars per danish) (Danishes) BC1 BC2 Given the price-quantity combinations from the preceding table, use the blue line (circle symbol) to plot Rosa's demand for danishes on the following graph. Hint: Assume that Rosa's demand for danishes is a straight line. You should derive two points on the demand curve from the preceding graph. Then place the blue line on the following graph so that it passes through these two points. Demand 0 2 4 6 8 10 12 14 16 18 20 10 9 8 7 6 5 4 3 2 1 0 PRICE (Dollars per danish) QUANTITY (Danishes)

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