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Jacob buys only milk and cookies. a. In year 1, Jacob earns $100, milk costs $2 per quart, and cookies cost S4 per dozen. Draw Jacob’s budget constraint. b. Now suppose that all prices increase by 10 percent in year 2 and that Jacob’s salary increases by 10 percent as well. Draw Jacob’s new budget constraint. How would Jacob’s optimal combination of milk and cookies in year 2 compare to his optimal combination in year 1?

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Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126
BuyFind

Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126

Solutions

Chapter
Section
Chapter 21, Problem 5PA
Textbook Problem

Jacob buys only milk and cookies.

a. In year 1, Jacob earns $100, milk costs $2 per quart, and cookies cost S4 per dozen. Draw Jacob’s budget constraint.

b. Now suppose that all prices increase by 10 percent in year 2 and that Jacob’s salary increases by 10 percent as well. Draw Jacob’s new budget constraint. How would Jacob’s optimal combination of milk and cookies in year 2 compare to his optimal combination in year 1?

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