Jim buys only milk and cookies. a. In year 1, Jim earns $100, milk costs $2 per
Question:
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?
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a Figure shows Jims budget constraint The vertical intercept is 50 ...View the full answer
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