Ashley spends all her income on gasoline and food. At first she earns $100, buys 25 gallons of gasoline at $2 per gallon, and purchases 10 pounds of food at $5 per pound. Her income later rises to $200, but the price of gasoline increases to $5 per gallon. In each of the following cases, can you say whether she is better or worse off? Why? Draw her budget constraint before and after the change in income, and identify her best choice before the change, and after the change when that information is supplied.
a. The price of food rises to $7 per pound.
b. The price of food rises to $8 per pound.
c. The price of food rises to $8 per pound, and she purchases 11 pounds of food after the change.
d. The price of food rises to $8 per pound, and she purchases 15 pounds of food after the change.