Winnie the Pooh is only interested in two goods, honey (x-axis) and peanut butter (y-axis).
(a) Use indifference curves and budget constraints to show a scenario where an increase in the
price of honey leads to an increase in Pooh’s consumption of peanut butter. Label
everything.
(b) Does this imply that Pooh considers honey and peanut butter as complements or as
substitutes? Explain your answer.
(c) Does this imply that Pooh considers peanut butter as a normal good? Explain why or why
not.
Show your work.

Answer rating: 100% (QA)

a Considering a basic indifference curve and budget line diagram the initial equilibrium is at ... View the full answer