Question: 6.4 A pensioner allocates her budget between three commodities, bread (b), tuna (t) and prune juice (p). If the ratio of the price of tuna

6.4 A pensioner allocates her budget between three commodities, bread (b), tuna (t) and prune juice (p). If the ratio of the price of tuna to bread is a constant pt pb

a. How might one deine a composite commodity for the pensioner’s solid food consumption?

b. State the pensioner’s optimisation problem as one of choosing between solid (s) and liquid (l)

food consumption.

c. What is the pensioner’s demand functions for s and l ?

d. Once the pensioner decides how much to spend on s, how will she allocate those expenditures between bread and tuna?

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