John considers milk (x1) and hot chocolate (x2) to be perfect substitutes at a rate of 2
Question:
John considers milk (x1) and hot chocolate (x2) to be perfect substitutes at a rate of 2 : 1, that is, he always receives the same utility if he has two glasses of milk or one cup of hot chocolate to drink. He spends $12 a day on hot beverage, and milk cost $1 while hot chocolate cost $3 each.
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Draw the Income Offer Curve and Engel Curve for milk.
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Draw the Price Offer Curve and Demand Curve for milk.
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The price of hot chocolate decreases to $1, and his income and the price of milk dont change. How does consumption change when the price of hot chocolate changes? What is John’s new level of utility? Show your result on a graph.
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How much must John’s budget decrease to return him to the original utility level?
Accounting Principles Part 1
ISBN: 978-1118306789
6th Canadian edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Kinnear, Joan E. Barlow