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File Edit View History Bookmarks le Wi Help D The University of Vern University of Verm Module 5: June 5-7-?, D Microsoft Word-free. x C Chegg Tuto x × CoSecure https://bb.uvm.e bdav/pid-2527546-dt-content-rid-16401972.1/courses/201806- e--%20 New York Times, August 28, 2005 I'm (Not) Worth It By Lynn Yaeger Kym Canter, the creative director of J. Mendel, is forcing herself to take the subway instead of taxis until she has made up the cost of a diamond brooch that she was sure she'd wear every single day. As of this writing, she has worn it only a couple of times-it isn't quite as magical pinned to the hip of her jeans as she had hoped and it'll be months before she can stop riding the rails Questions: Using the concepts and language of consumer theory, explain how Kym Canter decided to buy the diamond brooch. Did she select her optimal combination of goods?

Explanation / Answer

The above statement says that Kym who owned a diamond brooch has lost her from her jeans pocket, which she used to wear daily, to make up to the cost of buying another diamond brooch she has decided to use the subway instead of taxi to save money and collect it for the cost of diamond brooch. Also it is said that it would take months for her to collect that money.

Using the concepts of consumer theory:

- Consumer income: In this case her income is not sufficient to buy another brooch

- Consumer taste: Going the choice of buying another diamond brooch it's certain that she has high taste and doesn't settle for cheap goods.

- Price of goods: Here as the item is diamond brooch, it's price is definitely high.

- Rationality: Kym is rational in making this decision after considering the above factors.

Hence, the above concepts explain the decision of Kym.

Optimal combination of goods theory states that a good is selected for purchase from two options when the budget line is tangent to the indifference curve between the two goods that is the marginal cost is equal to the relative price of two goods.

Here Kym's budget is much lower than the diamond brooch price but still she wants to buy this instead of any other brooch which means that she did not select optimal combination of goods in making her decision.

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