Draw the budget line to scale with lunch

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A student's income is $50. Lunch at the cafeteria costs $5, and movies at the Student Union cost $2 each.

(a) Draw the budget line to scale, with lunch on the vertical axis; insert some regularshaped smooth convex indifference curves, and choose the tangency equilibrium, denoted by E0.

(b) If the price of lunch falls to $2.50, draw the new budget line. What can be said about the new equilibrium relative to E0 if both goods are normal?

(d) How does the equilibrium in part (c) differ from the equilibrium in part (b)?

Reference no: EM131072533

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