Use the semi-annually compounded yield curve below, price the following securities
January 4, 2018
he average 15-year-old purchases 100 song downloads from iTunes and buys 20 cheese pizzas in a typical year.
January 4, 2018

Assuming a consumer has standard indifference curves (i.e., resembling those in Figure 4-2), will she ever purchase exactly eight bottles of wine? Explain.

A common marketing tactic among many liquor stores is to offer their clientele quantity (or volume) discounts. For instance, the second-leading brand of wine exported from Chile sells in the United States for $15 per bottle if the consumer purchases up to eight bottles. The price of each additional bottle is only $8. If a consumer has $200 to divide between purchasing this brand of wine and other goods, graphically illustrate how this marketing tactic affects the consumer’s budget set if the price of other goods is $1. Assuming a consumer has standard indifference curves (i.e., resembling those in Figure 4-2), will she ever purchase exactly eight bottles of wine? Explain.

 

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