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This question requires you to think carefully about consumer choices and demand curves. (a) Chuck chooses...

This question requires you to think carefully about consumer choices and demand curves.

  1. (a) Chuck chooses to buy zero power tools when his income is $20,000. When his income rises to $40,000, he decides to buy one. When his income rises to $60,000, he chooses to buy two. In a single careful diagram, draw the budget lines and indifference curves to illustrate this situation (assume power tools cost $300 regardless of Chuck’s income). Be sure to label your diagram completely.

  2. (b) Chuck has an income of $40,000, and it is fixed in this part of the problem. When power tools cost $300, he chooses to buy one. When power tools cost $200, he chooses to buy two. When power tools cost $100 dollars, he chooses to buy three. In a single careful diagram, draw the budget lines and indifference curves to illustrate this situation (keep Chuck’s income constant at $40,000). Be sure to label your diagram completely.

  3. (c) Can the information in (a) be used to derive Chuck’s demand curve for power tools? Can the information in (b) be used to derive Chuck’s demand for power tools? If the answer to either is yes, use the information to estimate Chuck’s demand for power tools.

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