4.5. Maria's food and clothing consumption. Ten years ago, Maria had an income of 40, which she spent entirely on clothing (18 units) and food (22 units). Currently, Maria has an income of 56, which she spends entirely on clothing (28 units) and food (14 units). Ten years ago, the price of food was pf = 1 and the price of clothing was pc = 1. Today, the price of food is pf = 1.75, whereas the price of clothing is Pc = 1.12. (a) Plot Maria's choices on a graph with quantity of clothing on the horizontal axis and quantity of food on the vertical axis. Indicate Maria's budget constraint in each period as well as her optimal choice. (b) Suppose that Maria is a rational utility maximizer. Comparing income levels, can we tell whether Maria is better off or worse off at time 2 than at time 1? Why or why not? (Hint: draw indifference curves that are consistent with A and B being optimal choices.)

Micro Economics For Today
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ISBN:9781337613064
Author:Tucker, Irvin B.
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Chapter6: Consumer Choice Theory
Section6.A: Indifference Curve Analysis
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14.5. Maria's food and clothing consumption. Ten years ago, Maria
had an income of 40, which she spent entirely on clothing (18 units)
and food (22 units). Currently, Maria has an income of 56, which she
spends entirely on clothing (28 units) and food (14 units). Ten years
ago, the price of food was pf = 1 and the price of clothing was pc = 1.
Today, the price of food is pf = 1.75, whereas the price of clothing is
Pc = 1.12.
(a) Plot Maria's choices on a graph with quantity of clothing
on the horizontal axis and quantity of food on the vertical
axis. Indicate Maria's budget constraint in each period as
well as her optimal choice.
(b) Suppose that Maria is a rational utility maximizer.
Comparing income levels, can we tell whether Maria is
better off or worse off at time 2 than at time 1? Why or
why not? (Hint: draw indifference curves that are
consistent with A and B being optimal choices.)
Transcribed Image Text:14.5. Maria's food and clothing consumption. Ten years ago, Maria had an income of 40, which she spent entirely on clothing (18 units) and food (22 units). Currently, Maria has an income of 56, which she spends entirely on clothing (28 units) and food (14 units). Ten years ago, the price of food was pf = 1 and the price of clothing was pc = 1. Today, the price of food is pf = 1.75, whereas the price of clothing is Pc = 1.12. (a) Plot Maria's choices on a graph with quantity of clothing on the horizontal axis and quantity of food on the vertical axis. Indicate Maria's budget constraint in each period as well as her optimal choice. (b) Suppose that Maria is a rational utility maximizer. Comparing income levels, can we tell whether Maria is better off or worse off at time 2 than at time 1? Why or why not? (Hint: draw indifference curves that are consistent with A and B being optimal choices.)
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