Consumer choice Jo buys muffins and cupcakes at a bakery. Jo’s weekly budget for baked goods is $70. The price of muffins is $1.25. The price of cupcakes is $1.75. a) Write down Jo’s budget constraint: express the quantity of cupcakes as a function of the quantity of muffins. b) Show Jo’s budget constraint on a graph. Let quantity of muffins be on the horizontal axis. Let quantity of cupcakes be on the vertical axis. c) Show the following consumption bundles (points) on the graph. Calculate the cost of each consumption bundle and state which one of them are feasible. • Point A: 49 muffins and 3 cupcakes. • Point B: 38 muffins and 15 cupcakes. • Point C: 24 muffins and 24 cupcakes. • Point D: 14 muffins and 30 cupcakes. d) Which of these four points can be Jo’s optimal consumption bundle? Why? e) The price of cupcakes decreased to $1.5. Provide an example of a consumption bundle that became feasible now but wasn’t feasible before the decrease in price. Calculate the cost of this consumption bundle before and after the change in price. Using this calculation, show that this bundle wasn’t feasible before. f) Forget about part (e): the prices are the same as before. Jo lost a bet this week and had to give away $17.5. On a new graph, show the old budget constraint, the new budget constraint, and two bundles: (28 muffins, 20 cupcakes) and (35 muffins, 5 cupcakes). Assuming these two bundles are optimal for their respective budget constraint, draw two indifference curves these bundles would be situated on. Comment on whether these goods are normal or inferior and explain your choice. **I NEED HELP FOR D, E, F. Already submitted for A, B, C**
Consumer choice
Jo buys muffins and cupcakes at a bakery. Jo’s weekly budget for baked goods is $70. The
of muffins is $1.25. The price of cupcakes is $1.75.
a) Write down Jo’s budget constraint: express the quantity of cupcakes as a function of the
quantity of muffins.
b) Show Jo’s budget constraint on a graph. Let quantity of muffins be on the horizontal axis. Let
quantity of cupcakes be on the vertical axis.
c) Show the following consumption bundles (points) on the graph. Calculate the cost of each
consumption bundle and state which one of them are feasible.
• Point A: 49 muffins and 3 cupcakes.
• Point B: 38 muffins and 15 cupcakes.
• Point C: 24 muffins and 24 cupcakes.
• Point D: 14 muffins and 30 cupcakes.
d) Which of these four points can be Jo’s optimal consumption bundle? Why?
e) The price of cupcakes decreased to $1.5. Provide an example of a consumption bundle that
became feasible now but wasn’t feasible before the decrease in price. Calculate the cost of
this consumption bundle before and after the change in price. Using this calculation, show
that this bundle wasn’t feasible before.
f) Forget about part (e): the prices are the same as before. Jo lost a bet this week and had to give
away $17.5. On a new graph, show the old budget constraint, the new budget constraint, and
two bundles: (28 muffins, 20 cupcakes) and (35 muffins, 5 cupcakes). Assuming these two
bundles are optimal for their respective budget constraint, draw two indifference
bundles would be situated on. Comment on whether these goods are normal or inferior and
explain your choice.
**I NEED HELP FOR D, E, F. Already submitted for A, B, C**
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