1. Arya has an income of $150 per month. She spends on two goods: Burgers and Colas. The price of a burger is $5 and the price of a cola is $2. a. Using the information above, derive Arya's budget line equation with the quantity of cola on the left side. b. Arya's utility is maximized when 20 burgers and 40 colas are consumed. Draw an indifference curve along with your budget line (with quantity of burgers on the x-axis) to show Arya's best affordable point. c. Suppose, income falls from $150 to $100. Show how your graph in part (b) will change?
1. Arya has an income of $150 per month. She spends on two goods: Burgers and Colas. The price of a burger is $5 and the price of a cola is $2. a. Using the information above, derive Arya's budget line equation with the quantity of cola on the left side. b. Arya's utility is maximized when 20 burgers and 40 colas are consumed. Draw an indifference curve along with your budget line (with quantity of burgers on the x-axis) to show Arya's best affordable point. c. Suppose, income falls from $150 to $100. Show how your graph in part (b) will change?
Micro Economics For Today
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ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 3SQP
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Transcribed Image Text:1. Arya has an income of $150 per month. She spends on two goods: Burgers and Colas. The price of
a burger is $5 and the price of a cola is $2.
a. Using the information above, derive Arya's budget line equation with the quantity of cola
on the left side.
b. Arya's utility is maximized when 20 burgers and 40 colas are consumed. Draw an
indifference curve along with your budget line (with quantity of burgers on the x-axis) to
show Arya's best affordable point.
c. Suppose, income falls from $150 to $100. Show how your graph in part (b) will change?
d. Suppose, price of burger rises from $5 to $10. Show how your graph in part (b) will
change?
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