Jim Range Has to Choose Between Buying More Soda or More

question 31

Essay

Jim Range has to choose between buying more soda or more pasta for the week. He has a fixed income and he knows the prices of both products. Using indifference curves and budget constraint lines, illustrate the amount of soda and pasta that Jim will purchase. When he gets to the store, he finds the price of soda has fallen dramatically. How does this change his optimal purchase? Can a general rule of human behavior be developed from this graphical example?

---

Definitions:

Semistrong Form

A level of market efficiency that assumes stock prices already reflect all publicly available information, rendering fundamental analysis ineffective at achieving superior returns.

Constant Growth Model

A model for valuing a stock by assuming it will pay dividends that grow at a constant rate indefinitely.

Dividend Yield

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Expected Return

A synonym for Expected Rate of Return, signifying the profit or loss investors anticipate from an investment, commonly shown as a percentage.