Graph: Consumer Choice lan buys only chocolate-chip cookies and cashew nut milk. In year 1, lan earns $100. Cashew nut milk costs $2 per quart, and chocolate-chip cookies cost $4 per dozen. Draw a graph indicating lan's budget constraint and an indifference curve indicating optimum consumption. Then suppose that in year 2 all prices increase by 10% and that lan's salary increases by 10% as well. On the same graph, draw lan's new budget constraint and optimum consumption. Briefly explain how lan's optimal combination of cashew nut milk and chocolate-chip cookies in year 2 compares to the optimal combination in year 1.

Graph: Consumer Choice lan buys only chocolate-chip cookies and cashew nut milk. In year 1, lan earns $100. Cashew nut milk costs $2 per quart, and chocolate-chip cookies cost $4 per dozen. Draw a graph indicating lan's budget constraint and an indifference curve indicating optimum consumption. Then suppose that in year 2 all prices increase by 10% and that lan's salary increases by 10% as well. On the same graph, draw lan's new budget constraint and optimum consumption. Briefly explain how lan's optimal combination of cashew nut milk and chocolate-chip cookies in year 2 compares to the optimal combination in year 1.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 1PA

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