Sanjana loves to read booksb and likes to watch moviesm as...

Sanjana loves to read books(B) and likes to watch movies(M) as well. She derives double the satisfaction from reading a book than watching a movie. Her utility function is as follows U(B, M) = 2B + M Where B and M are the number of books and movies respectively. a. Explain the shape of the indifference curve using diagrams. b. The income available with her is INR60. And price of movie ticket is INR 10 and that of a book is INR 15. Will she spend her entire budget and why? What will be her consumption, explain why?

Transcript

00:01 Hello, so today i'm going to answer your question about how an individual, in this case, sanjana spend their income.

00:09 For doing so, first i'm going to use a graphical representation as your exercise is required.

00:14 So this is the utility.

00:16 Sanjana obtained books, obtain books from consuming books and from consuming movies.

00:22 You can see from her utility function that she gets twice the utility from consuming books that from consuming movies.

00:29 So the slopping here would be 2 to 1.

00:33 Then they tell you that you want to understand how it would be the indifferent schools, so the interest course would be linear.

00:41 In this case the utility is constant, the relationship is constant.

00:47 And then they ask you how she will distribute it, as you can see, she will distribute everything on one good and the way that you can determine on which good would be is understanding the price relationship.

00:59 So first i am going to show you how i'll do it.

01:04 The intuitive way and then i'm going to show you how to do it in general terms.

01:08 So the intuitive way is doing the income.

01:11 So in this case, 60, that is her total income over the price.

01:16 And then considering that it's twice the utility, so she will get eight units of utility if she spent everything on books and six on movies, so she will spend everything on books...

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