Question

1. Howard has $60 per week to consume tacos and tortilla chips. He buys tacos and chips from the only store in his rural town, which charges $2 for a taco and $1 for chips. Howard only eats in combinations of 1 taco with 2 bags of chips.
   1. Using the utility-maximization model, graphically show a series of three indifference curves representing Howard’s preferences. (Explain any assumptions you make, and set up your model with tacos on the horizontal axis and chips on the vertical axis.)

2. Using the utility-maximization model, on a new graph, graphically show his optimal consumption bundle if he buys 15 tacos per week. Be sure to determine how many bags of chips he will consume.

3. On the same graph as (b), graphically show the income and substitution effects if the price of tacos increases.

4. Based on (c), explain how you know tacos and chips are normal or inferior goods.

Answer 1

Since repaid spending line meet starting detachment bend at same point ,so implies there is no replacement effect.so there is just pay impact .

Accordingly it tells merchandise are impeccable supplement.

D) Because increment in cost of tacos Decrease genuine salary ,and the ideal amount of both great additionally lessen ,along these lines it tells there is positive/direct connection between great interest and pay ,so merchandise are ordinary.