A consumer consumes two goods: wraps and tea, with respective quantities x1 and x2. Suppose the...

 

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A consumer consumes two goods: wraps and tea, with respective quantities x1 and x2. Suppose the price of a wrap is $5 and the price of a cup of tea is $1. The consumer's weekly income is m = $70. Suppose the consumer can go to two different restaurants which sell wraps and tea, M or N. At restaurant M, for every 5 wraps consumed in a week, the customer receives one free wrap. At restaurant N, for the first five teas consumed in a week, a customer receives two free teas (after that any additional tea is sold at the regular price). Plot an example indifference curve of a consumer who would optimally choose to go to restaurant M. Do the same for restaurant N (plot a different example indifference curve). Suppose that now both promotions are over but the consumer decided to never consume more than 1 wrap per day (i.e., a maximum total of 7 wraps for the week). Draw the consumer's budget line with this condition imposed. A consumer consumes two goods: wraps and tea, with respective quantities x1 and x2. Suppose the price of a wrap is $5 and the price of a cup of tea is $1. The consumer's weekly income is m = $70. Suppose the consumer can go to two different restaurants which sell wraps and tea, M or N. At restaurant M, for every 5 wraps consumed in a week, the customer receives one free wrap. At restaurant N, for the first five teas consumed in a week, a customer receives two free teas (after that any additional tea is sold at the regular price). Plot an example indifference curve of a consumer who would optimally choose to go to restaurant M. Do the same for restaurant N (plot a different example indifference curve). Suppose that now both promotions are over but the consumer decided to never consume more than 1 wrap per day (i.e., a maximum total of 7 wraps for the week). Draw the consumer's budget line with this condition imposed.

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Answer I At M maximum tea cups are 70 and maximum wraps are 16 II At N maximum tea cups are 72 and m... View the full answer