Reference no: EM133259937
Milo consumes books and video games. He spends $100 a month on books and video games, which cost him $5 per book or $10 per video game.
a. If his optimal bundle includes 5 video games, how many books does he consume?
b. Graph Milo's budget constraint with video games on the x-axis and indicate the optimal bundle. Label the budget line L1. Draw an indifference curve to indicate the optimal bundle and label the indifference curve I1
c. The price of video games decreases to $5. On the same graph as the above graph a new budget constraint that includes the new lower price of video games. Label the budget line L2. If Milo now consumes 12 books and 8 video games, indicating his new optimal bundle and indifference curve. Label the new indifference curve I2
d. The price of video games decreases again to $2. Graph the new budget constraint Milo faces and his new optimal bundle, 14 books, and 15 video games. Label the new indifference curve I3 and the new budget line L3
e. Graph and label Milo's Price Consumption Curve
f. In a graph directly below Milo's Budget and Indifference Curves, plot out the changes in the price of video games and the quantity demanded of video games. Label Milo's demand for video games. Make sure to label the Y-axis Price and the X-axis Quantity.
g. Does Milo's demand for video games obey the law of demand?
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