Principles of Economics, 7th Edition (MindTap Course List)
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 21, Problem 5PA

Subpart (a):

To determine

The budget constraint of a person.

Subpart (b):

To determine

The budget constraint of a person.

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Eric buys only milk and cookies. In year 1, Eric earns $90, milk costs $2 per quart, and cookies cost $3 per dozen. Use the green line (triangle symbol) to draw Eric's budget constraint on the following graph. Now suppose that all prices increase by 10 percent in year 2 and that Eric's salary increases by 10 percent as well. Use the blue line (circle symbol) to draw Eric's new budget constraint on the preceding graph. True or False: Eric will consume more milk and fewer cookies in year 2 than in year 1. True False.
Jim buys only milk and cookies. a. In year 1, Jim earns $100, milk costs $2 per quart, and cookies cost $4 per dozen. Draw Jim's budget constraint. b. Now suppose that all prices increase by 10 percent in year 2 and that Jim's salary increases by 10 percent as well. Draw Jim's new budget constraint. How would Jim's optimal combination of milk and cookies in year 2 compare to his optimal combination in year 1?
Jim buys only milk and cookies. a. In year 1, Jim earns $100, milk costs $2 per quart, and cookies cost $4 per dozen. Draw Jim’s budget constraint. b. Now suppose that all prices increase by 10 percent in year 2 and that Jim’s salary increases by 10 percent as well. Draw Jim’s new budget constraint. How would Jim’s optimal combination of milk and cookies in year 2 compare to his optimal combination in year 1? Could you please provide me in details answer?
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