Sue does not attend any sporting events. Draw a budget constraint and indifference curve diagram with two goods (sporting events and all other goods) to explain why Sue is still maximizing her utility.

Question

Quizplus · Accepted Answer

The Answer is See Figure 2.2. Sue maximizes her utility by climbing to the highest indifference curve (U2) that is still within her budget. The combination happens to be one, which includes zero sporting events. This is called a corner solution. One does not have to consume something of everything in order to maximize one's utility. In a single visit you do not buy a little of every single item available of the grocery store but you leave (presumably) happy with the choices that you have made from among those that you can afford.

Figure 2.2

Sue Does Not Attend Any Sporting Events