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A has income of $300, which she spends on cheese and red wine (both are divisible)....

A has income of $300,

which she spends on cheese and red wine (both are divisible). The price of cheese is $5 per unit, and the price of red wine is $10 per glass.

a. Draw A budget constraint with cheese is on the horizontal axis.

b. Now assume that the shop has a special offer: if you buy more than 10 units of cheese, then the price is $2 each for any subsequent amount more than 10 units of cheese. Draw Alice new budget constraint on the same diagram as in part a. Explain briefly how you get to the budget line

c. Is A better off or not after the change? Can she be indifferent? Draw indifference curves on the diagram to explain your answers

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