Akio consumes two goods, books and sweaters. His income is $24, the price of a sweater is $4, and the price of a book is $2.
a. Suppose Akio’s parents give him $8 for his birthday. Draw Akio’s budget set.
b. Now suppose Akio’s parents had given him two sweaters for his birthday instead of giving him $8. Akio is a very polite young man and would never return a gift that his parents had given him. Draw Akio’s budget set.
c. Based on your answers to parts a and b, is it possible that
Akio would prefer a gift of $8 to a gift of two sweaters?
He would prefer a gift of two sweaters to a gift of $8?
He would be indifferent between a gift of $8 and a gift of two sweaters?