Question

Jane has $36 per week to spend on burgers (B) and milkshakes (M). The price of a burger is $4 and milkshakes are $3.

a. Write the equation for Jane’s budget constraint.

b.Graph Jane’s budget constraint with burgers on the horizontal axis. Be sure to label both the x-intercept and the y-intercept with the proper value.

c.If Jane spends all of her money on these two goods, how many milkshakes can she buy if she buys three burgers this week?

d.Draw an indifference curve in your graph above that would reflect this level of consumption of burgers and milkshakes.e.Suppose the price of milkshakes falls to $2, while the price of burgers remains unchanged. Draw Jane’s new budget constraint in your graph using a dashed line.

f.What will happen to Jane’s utility after this price change? Circle one: Increase Decrease Remain unchanged

g.If you know that Jane’s tastes have not changed and she buys two burgers after the price of milkshakes falls, for Jane, burgers and milkshakes must be:

Complements Substitutes Unrelated

Answer 1