Answer to Question #221814 in Microeconomics for D1221

Question

2. Saron spends 150 birr per month on coffee and cake at the cafeteria. A cup of coffee costs 15 birr and a cake costs 10 birr. 

a) Write the equation for Saron’s cafeteria budget constraint and draw it in a diagram. 

b) Assume that Saron never drinks coffee without eating one cake, and never eats cakes without drinking coffee. How much of each will she consume? Draw some of her indifference curves.

c) What do we call goods that are always consumed in the same proportion?

Answer 1

a) Suppose $Q_c$  is the quantity of coffee Saron drinks and $Q_k$  is the quantity of cake she consumes. With $I = 150, P_c = 15\space and \space P_k = 10,$ and assuming that Saron spends all of her income on coffee and cake, her budget constraint can be written as, 

$15Q_c+ 10Q_k = 150$

b) If Saron never drinks coffee without eating one cake, and never eats cakes without drinking coffee, then she takes coffee and cakes in same proportion. When $Q_c = Q_k = 6,$ $15(6) +10(6) = 150$ . Therefore she consumes 6 cups of coffee and 6 cakes each month. 

c) Goods that are always consumed in the same proportion are called complementary goods.