Farah has $100 to spend each month on bread and chicken.Suppose the price of bread is $4 a loaf and the price of chicken is $5 per pound.
a. Draw her budget constraint and label it BC0.Put bread on the horizontal axis and chicken on the vertical axis.Be sure to identify the intercept values.
b. Suppose Farah is a utility maximiser and she consumes 10 loaves of bread and 12 metric of chicken.On the same graph you drew in part (a), draw an indifference curve to identify her optimal bundle.Label this bundle 'E.'
c. Is her budget exhausted? Verify your answer.
d. Now suppose Farah's income falls so that she can now devote $80 to the two goods.Prices however remain unchanged.In the same diagram, graph her new budget constraint and label it BC1.Be sure to identify any new intercept values.
e. Following the change in income, can Farah consume the same bundle 'E'? Explain your answer.
f. What must happen to her total utility following the decrease in her income?
__________________________________________________________________________________________________________________________________________________________________________________________
Correct Answer:
Verified
b. See the figur...
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q240: Why do convex indifference curves have a
Q245: Figure 6.7 Q246: Figure 6.7 Q247: Grant has $200 to spend each month Q265: Suppose the consumer's income increases while the Q285: All consumption bundles along a given indifference Q286: Which of the following is not a Q286: A consumer's indifference curves can never cross. Q290: Assume that Anne has $300 to spend Q303: What is an indifference curve? Why can
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents