Patrick consumes only two goods: Celtic Music concerts and Celtic Springs Water. Patrick earns $100 per month at his part-time job in the library. The price of Celtic concerts is $10. The price of Celtic Springs Water is $2. Patrick currently goes to 5 Celtic concerts and consumes 25 bottles of Celtic Spring Water in a month.
(a) Draw Patrick's budget constraint and optimal consumption bundle. Please put Celtic concerts on the x-axis.
(b) In April Patrick receives a 5% pay increase. Inflation raises the price of concerts to $10.50 and the price of Celtic Springs Water to $2.10. Draw Patrick's new budget constraint and optimal consumption bundle. Please put Celtic concerts on the x-axis. How many Celtic concerts does he attend in April? How many bottles of water does he drink in April?

Question

Quizplus · Accepted Answer

The Answer is (a) <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB1778/11ea6db8_cd7f_dbae_9c10_dbb398a73933_TB1778_00.jpg" alt="(a)   (b) His budget constraint does not change. The new vertical intercept of 50 waters is the same as the old vertical intercept of 50 waters. The new horizontal intercept of 10 concerts is the same as the old horizontal intercept of ten concerts. The relative price of Celtic concerts is always 5 bottles of Celtic Springs Water. He consumes 5 Celtic concerts and 25 bottles of Celtic Spring Water." class="answers-bank-image d-block" rel="preload" > (b) His budget constraint does not change. The new vertical intercept of 50 waters is the same as the old vertical intercept of 50 waters. The new horizontal intercept of 10 concerts is the same as the old horizontal intercept of ten concerts. The relative price of Celtic concerts is always 5 bottles of Celtic Springs Water. He consumes 5 Celtic concerts and 25 bottles of Celtic Spring Water.

Patrick Consumes Only Two Goods: Celtic Music Concerts and Celtic