Vera is an impoverished graduate student who has only $100 a month to spend on food. She has read in a government publication that she can assure an adequate diet by eating only peanut butter and carrots in the fixed ratio of 2 pounds of peanut butter to 1 pound of carrots, so she decides to limit her diet to that regime.
a. If peanut butter costs $4 per pound and carrots cost $2 per pound, how much can she eat during the month?
b. Suppose peanut butter costs rise to $5 because of peanut subsidies introduced by a politically corrupt government. By how much will Vera have to reduce her food purchases?
c. How much in food stamp aid would the government have to give Vera to compensate for the effects of the peanut subsidy?
d. Explain why Vera’s preferences are of a very special type here. How would you graph them?