Assume that a consumer has a budget of $45 to allocate over two products, milk (M) and

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Assume that a consumer has a budget of $45 to allocate over two products, milk (M) and bread (B). The price of milk is PM = $4:50 and the price of bread is PB = $5:50.

1(a): Draw a graph of the budget constraint, assuming that the quantity of milk (QM) is on the horizontal axis. 1(b): Include on your budget constraint the following four allocations (and clearly identify the quantities of both products implied by each point):

1. Point A: when the consumer chooses to consume 4 units of milk

2. Point B: when the consumer chooses to consume 3.27 units of bread

3. Point C: the maximum amount of milk purchasable with $45

4. Point D: when the consumer chooses to spend $30 on milk 1(c): On another graph, draw two budget constraints: the old constraint (from the previous questions) and a second constraint, when the price of bread increases to (PB2 = $6:00). (Do not demarcate the points of question 1(b), but indicate the maximum quantities of each product purchasable with $45 at the new set of prices.)

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Related Book For  answer-question

Microeconomics

ISBN: 9781464146978

1st Edition

Authors: Austan Goolsbee, Steven Levitt, Chad Syverson

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