Questions on the unbearable richness of biscuits:
1. Read “The unbearable richness of biscuits” at:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/09/theunbearable-richness-of-scones.html Now
a. Use an indifference curve/budget constraint diagram to explain why,
as a person’s income increases, they might switch from consuming
1930s-style biscuits to consuming 2012-style biscuits, even if the
relative price of flour and butter/cheese does not change. Hints: put
butter or cheese on one axis, and flour on the other. Read chapter 3 of
the textbook. Write a short paragraph describing your diagram.
Explain the meaning of any terms used.
b. There has been much talk in the US of introducing a “fat tax” on high
calorie food ingredients such as sugar, butter and other fats (see, for
example, this article:
http://www.slate.com/articles/business/the_dismal_science/2012/0
9/bloomberg_s_soda_ban_taxing_sugary_beverages_is_a_better_more_
effective_idea_.html) Use your indifference curve/budget constraint
diagram to predict how tax on fat (butter and cheese) would impact
the way that people choose to make biscuits. Write a short paragraph
explaining what your diagram shows. Explain the meaning of any
terms used.
c. Lois loves to bake 2012-style cheese biscuits, but her doctor tells her
that unless she reduces her fat consumption, she is at risk of heart
disease, so Lois decides to switch to a low-fat cheese biscuit recipe.
Draw an indifference curve/budget constraint diagram that shows
Lois’s consumption choices before and after the doctor’s visit. Use
different colours of ink for before and after the visit. Include a short
paragraph describing the diagram.
d. Do Lois’s preferences in part (c) above violate the assumptions of
transitivity/consistency? Why or why not.