Each week, Bill, Mary and Jane select the quantity of two goods, x1 and x2, that they will consume in order to maximize their respective utilities. They each spent their entire weekly income on these two goods.

Question

Suppose you are given the following information about the choices that Bill makes over a three-week period:

x1 x2 P1 P2 I
week 1 10 20 2 1 40
week 2 7 19 3 1 40
week 3 8 31 3 1 55

Did Bills utility increase or decrease between week one and week 2? Between week 1 and week 3? Explain using a graph to support your answer.

Answer 1

Without a doubt, between week-1 and week-2, Bill's utility went down. He consumes less of everything (both x1 and x2 go down).
Without a doubt, between week-2 and week-3, Bill's utility went up. He consumes more of everything.