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1- Howard has $60 per week to consume tacos and tortilla chips. He buys tacos and chips from the only store in his rural town, which charges $2 for a taco and $1 for chips. Howard only eats in combinations of 1 taco with 2 bags of chips.
⦁ Using the utility-maximization model, graphically show a series of three indifference curves representing Howard’s preferences. (Explain any assumptions you make, and set up your model with tacos on the horizontal axis and chips on the vertical axis.)
⦁ Using the utility-maximization model, on a new graph, graphically show his optimal consumption bundle if he buys 15 tacos per week. Be sure to determine how many bags of chips he will consume.
⦁ On the same graph as (b), graphically show the income and substitution effects if the price of tacos increases
⦁ Based on (c), explain how you know tacos and chips are normal or inferior goods
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