Is lionel better off in the new or old situation

Reference no: EM131072529

Lionel likes to eat a nice piece of Brie cheese while having a glass of wine. He has a monthly gourmet budget of $120. In a diagram with wine on the vertical axis and cheese on the horizontal axis, suppose that the intercepts are 10 bottles on the wine axis and 4 kilos on the cheese axis. He is observed to purchase 5 bottles of wine and 2 kilos of cheese.

(a) What are the prices of wine and cheese?

(b) Suppose that the price of wine increases to $20 per bottle, but that LionelŠs income simultaneously increases by $60. Draw the new budget constraint and mark the intercepts.

Reference no: EM131072529

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