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Jose allocates all of his monthly income of $1500 to the purchase of good X and good Y, and he has strictly convex preferences. He has the option of purchasing the goods from either Aldi or Costco, i.e., he cannot shop from both. At Aldi, there are no membership fees, and he can purchase good X at a price of $12 per unit and good Y at a price of $20 per unit. At Costco, he must pay a monthly membership fee of $200. However, the price of good X is lower by 10% at Costco and price of good Y is lower by 20% at Costco relative to Aldi. Given this information, please answer the following questions: (i) On the same diagram, illustrate and compare Jose's budget constraint if he shops at Aldi with that if he shops at Costco. Explain your work. (ii) Reproduce your diagram from part (i). On this diagram, position Jose's optimal bundle if he shops at Aldi and his optimal bundle if he shops at Costco assuming that he is better off by shopping at Aldi. Explain your answer.

Jose allocates all of his monthly income of $1500 to the purchase of good X and good Y, and he has strictly convex preferences. He has the option of purchasing the goods from either Aldi or Costco, i.e., he cannot shop from both. At Aldi, there are no membership fees, and he can purchase good X at a price of $12 per unit and good Y at a price of $20 per unit. At Costco, he must pay a monthly membership fee of $200. However, the price of good X is lower by 10% at Costco and price of good Y is lower by 20% at Costco relative to Aldi. Given this information, please answer the following questions: (i) On the same diagram, illustrate and compare Jose's budget constraint if he shops at Aldi with that if he shops at Costco. Explain your work. (ii) Reproduce your diagram from part (i). On this diagram, position Jose's optimal bundle if he shops at Aldi and his optimal bundle if he shops at Costco assuming that he is better off by shopping at Aldi. Explain your answer.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Jose allocates all of his monthly income of $1500 to the purchase of good X and good Y, and he has strictly convex preferences. He has the option of purchasing the goods from either Aldi or Costco, i.e., he cannot shop from both. At Aldi, there are no membership fees, and he can purchase good X at a price of $12 per unit and good Y at a price of $20 per unit. At Costco, he must pay a monthly membership fee of $200. However, the price of good X is lower by 10% at Costco and price of good Y is lower by 20% at Costco relative to Aldi. Given this information, please answer the following questions: (i) On the same diagram, illustrate and compare Jose's budget constraint if he shops at Aldi with that if he shops at Costco. Explain your work. (ii) Reproduce your diagram from part (i). On this diagram, position Jose's optimal bundle if he shops at Aldi and his optimal bundle if he shops at Costco assuming that he is better off by shopping at Aldi. Explain your answer.
Transcribed Image Text:Jose allocates all of his monthly income of $1500 to the purchase of good X and good Y, and he has strictly convex preferences. He has the option of purchasing the goods from either Aldi or Costco, i.e., he cannot shop from both. At Aldi, there are no membership fees, and he can purchase good X at a price of $12 per unit and good Y at a price of $20 per unit. At Costco, he must pay a monthly membership fee of $200. However, the price of good X is lower by 10% at Costco and price of good Y is lower by 20% at Costco relative to Aldi. Given this information, please answer the following questions: (i) On the same diagram, illustrate and compare Jose's budget constraint if he shops at Aldi with that if he shops at Costco. Explain your work. (ii) Reproduce your diagram from part (i). On this diagram, position Jose's optimal bundle if he shops at Aldi and his optimal bundle if he shops at Costco assuming that he is better off by shopping at Aldi. Explain your answer.
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