Draw new budget constraint to reflect increase in price

Reference no: EM131020765

The following graph illustrates the combination of apples and oranges (point A) that maximizes Yolanda's total utility, given her budget. Suppose the price of oranges doubles, while the price of apples and Yolanda's income both stay the same.

a. Draw a new budget constraint to reflect the increase in the price of oranges.

b. Based on the assumptions regarding consumer preferences listed at the beginning of this appendix, sketch in a new indifference curve to reflect the new optimal combination of apples and oranges now that the price of oranges has doubled.

c. Are there any circumstances in which the new optimal combination of apples and oranges will include a larger quantity of oranges (compared to the original combination)? Briefly explain.

Reference no: EM131020765

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