In: Economics
Microeconomics question:
1a. Suppose Constance Wu is choosing different amounts of Californian sourdough bread and Portuguese codfish to consume. Her income is N. The price of one Californian sourdough bread is Pc and the price of one Portuguese codfish is Pp. Draw and label a graph showing her budget line and her standard indifference curves. Indicate in your graph the optimal amount of Californian sourdough bread and the optimal amount of Portuguese codfish that she should consumer in order to maximize her total utility. At the optimal consumption point, what is the relationship between the slope of the budget line and the slope of the indifference curve?
1b. Suppose Constance Wu’s income increases, and the price of a Californian sourdough bread stays the same and the price of a Portuguese codfish stays the same, show in a separate graph how her optimal consumption of the two goods changes.