I had to make a trip to Econo Foods to buy lab snacks for my geology lab on Tuesday today. I set myself a budget for $10 to supply snacks for the 19 people in my lab group. I decided that I wanted to buy granola bars as a snack, since most people this week in lab will be traveling to different sites for their group research projects and granola bars would be the easiest to take along. Upon reaching the granola bar section and comparing the prices of the bars (and based on which bars I prefer personally) I found that these two options, shown in the budget constraint diagram, worked with my budget. The Quaker Chewy bars were offered for a 2 for $5 sale and had 8 bars in each box, so if I spend my entire budget on this deal I would end up with 32 bars. Also, I could pick up to 4 different varieties with this offer. The Nature Valley Variety Pack included 24 bars per pack at a price of $5. If I spend all of my budget on this offer I would end up with 44 bars, 12 more than the Quaker Chewy bars deal. However, with the variety pack I’m limited to 3 flavors. I could either spend my entire budget on either one of the deals or I could’ve bought 1 Nature Valley pack and 2 Chewy bars packs. However, since I was getting the most out of my budget with the Nature Valley deal with 44 bars I decided to go with that one. The budget constraint diagram illustrates exactly the options that were available to me with my $10 budget. Of course, if I increased my budget I could have bought more of either one or mixed between the two more.
One other point to consider during this decision was the fact that I could only buy the Chewy bars in sets of 2, otherwise the sale wouldn’t have applied and 1 box of bars would have cost about $3 (I don’t remember the exact price, but it was more than $2.50). If I did buy an odd number of Chewy bar packs this budget constraint diagram would not be an accurate representation of my options. There would be separate points on the diagram representing the bundles if I were to buy an odd number of Chewy bar packs. If I bought just 1 Chewy bar pack for $3 and spend the rest of the $7 on 1 Nature Valley bars pack, this situation would be outside of the current budget constraint (represented by the red dot) and the line would not be continuous.
I think another interesting way to look at buying lab snacks, given the example of Chewy Bars and Nature Valley Bars, is with indifference curves. Personally, I like Nature Valley Bars a lot more than Chewy Bars, so it would take 2 or 3 Chewy Bars to make me equally as happy as just 1 Nature Valley Bar. That said, I get sick of both these snacks when I eat a lot of them, so I do have diminishing marginal utility for them.
As Caleb mentioned above, the preferences of these two goods can be expressed using indifference curves. I think these goods could be considered substitutes yielding a graph of indifference curves with a straight line from the y-axis to x-axis (as we’ve seen in our textbook). Using myself as an example, I would not consider these goods to be perfect substitutes because I like Chewy Bars much more than I like Nature Valley Bars. I would take three Nature Valley Bars to make me as happy as I would be with one Chewy Bar (hopefully Chocolate Chip).