1. Suppose that you have an income of $10 to spend on sticky hands and gumballs. Both cost $1.00. a.) Solve for the budget constraint, using gumballs as your x variable. Graph the budget constraint. Draw an indifference curve such that the optimal consumption bundle is 5 gumballs and 5 sticky hands.

1. Suppose that you have an income of $10 to spend on sticky hands and gumballs. Both cost $1.00. a.) Solve for the budget constraint, using gumballs as your x variable. Graph the budget constraint. Draw an indifference curve such that the optimal consumption bundle is 5 gumballs and 5 sticky hands.

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 1PA

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SOLVE ONLY B 1. Suppose that you have an income of $10 to spend on sticky hands and gumballs. Both cost $1.00. a.) Solve for the budget constraint, using gumballs as your x variable. Graph the budget constraint. Draw an indifference curve such that the optimal consumption bundle is 5 gumballs and 5 sticky hands. b.) Suppose that the price of gumballs falls to 25 cents. Draw the new budget constraint, original budget constraint from a.) and original indifference curve from a.) in a new graph. Draw a new optimal in indifference curve such that gumballs and sticky hands are substitutes and sticky hands are a normal good.
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