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ePack: Principles of Microeconomics 6th Edition by Gregory Mankiw
Edition 6ISBN: 978-1133150558ePack: Principles of Microeconomics 6th Edition by Gregory Mankiw
Edition 6ISBN: 978-1133150558 Exercise 5
Jim buys only milk and cookies.
a. In year 1, Jim earns $100, milk costs $2 per quart, and cookies cost $4 per dozen. Draw Jim's budget constraint.
b. Now suppose that all prices increase by 10 percent in year 2 and that Jim's salary increases by 10 percent as well. Draw Jim's new budget constraint. How would Jim's optimal combination of milk and cookies in year 2 compare to his optimal combination in year 1?
a. In year 1, Jim earns $100, milk costs $2 per quart, and cookies cost $4 per dozen. Draw Jim's budget constraint.
b. Now suppose that all prices increase by 10 percent in year 2 and that Jim's salary increases by 10 percent as well. Draw Jim's new budget constraint. How would Jim's optimal combination of milk and cookies in year 2 compare to his optimal combination in year 1?
Explanation
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(a)Since budget constraint shows all the...
ePack: Principles of Microeconomics 6th Edition by Gregory Mankiw
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