Question

Suppose Eve allocate $3000 of her monthly income to the purchase of cheese cakes and soda of which she receives a marginal utility of 1200 for cheese cake and 400 for soda
i. Illustrate the Eve budget lines when the price of cheese cake increase by $100

Answer 1

If the price of cheese cake increases by $100, then the budget line will shift to the left, the consumption of cheese cakes will decrease, and the consumption of soda may either increase or decrease.