Bundle of cigarettes and coffee that iggy could trade for

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Reference no: EM13861971

Iggy only consumes two goods: coffee and cigarettes. Three cigarettes can be traded for one cup of coffee in a free market, or one cup coffee can be traded for three cigarettes. Iggy initially has 12 cigarettes and 5 cups of coffees.

1. Find an equation that gives every bundle of cigarettes and coffee that Iggy could trade for.

2. Iggy has a MRS = -5 when he is holding his initial bundles (cigs, coffee)=(12,5). Given the rate of exchange, would Iggy trade cigarettes for coffee, or coffee for cigarettes?

Reference no: EM13861971

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