Alex buys two goods, food (F) and clothing (C). He likes both goods. His preferences for the

Question:

Alex buys two goods, food (F) and clothing (C). He likes both goods. His preferences for the goods do not change from month to month. The following table shows his income, the baskets he selected, and the prices of the goods over a two-month period.

a) On the graph with F on the horizontal axis and C on the vertical axis, plot and clearly label the budget lines and consumption baskets during these two weeks. Label the consumption bundle in week 1 by point A on the graph and the consumption basket in week 2 by point B. Using revealed preference analysis, what can you say about Alex's preferences for baskets A and B (i.e., how does he rank them)?
b) In month 3 Alex's income rises to 57. The prices of food and clothing are both 3. Assuming his preferences do not change, describe the set of baskets he might consume in month 3 if he continues to maximize utility. Show this set of baskets in the graph.