Answer to Question #275844 in Microeconomics for Sanjali

Question

Q2. Suppose you are on a three-day trip to Rome (from Monday to Wednesday) and during your stay you decide to consume only Waffle and Ravioli (measured on the horizontal and vertical axes respectively). You have a given amount of money (some constant) to spend on each of the three days. Suppose that the price of Waffle rises between Monday and Tuesday. If your optimum points of consumption on Monday and Tuesday are respectively called M and T, such that M to the left of T, what does it say about both the commodities? Illustrate your answer using an appropriate diagram. [3 MARKS, Word limit: 200]

Answer 1

Waffle=x

Ravioli=y

let 's use the budget constraint formula:

I=Px+Py

Let the income be 200, the price of waffles is 5, and 10

200=5x+10y

price of waffles is 8, and 10

200=8x+10y