Question 3 a. Marsha has a salary of $500. He spends his entire budget on milk and cookies. The cost of a gallon of milk is $4 and the cost of a slice of cookies is $8. i. Construct Marsha’s budget constraint (place) cookies on the y-axis. ii. Suppose Marsha’s salary rises by 50%. Also suppose that the price of milk and cookies each rise by 50%. Construct Marsha’s new budget constraint. What is the difference between the new and old budget constraints? iii. Suppose that the price of cookies fell from $8 per cookie to $4. Construct Marsha’s new budget constraint. What is the difference between the new and old budget constraints.
Question 3
a. Marsha has a salary of $500. He spends his entire budget on milk and cookies. The cost of a gallon of milk is $4 and the cost of a slice of cookies is $8.
i. Construct Marsha’s budget constraint (place) cookies on the y-axis.
ii. Suppose Marsha’s salary rises by 50%. Also suppose that the price of milk and cookies each rise by 50%. Construct Marsha’s new budget constraint. What is the difference between the new and old budget constraints?
iii. Suppose that the price of cookies fell from $8 per cookie to $4. Construct Marsha’s new budget constraint. What is the difference between the new and old budget constraints.
b. Explain the relationship between the budget constraint and indifference curve at consumer optimum.
![](/static/compass_v2/shared-icons/check-mark.png)
Step by step
Solved in 3 steps with 3 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
![Managerial Economics: A Problem Solving Approach](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
![Managerial Economics & Business Strategy (Mcgraw-…](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)