What bundle must he have consumed in 2022

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Reference no: EM133633532

Question: Geraldo only consumes bundles of two different spices, cinnamon and nutmeg. In 2022, Geraldo's income is $70, the price of cinnamon is $2/jar, and the price of nutmeg is $7/jar. In 2023, the price of cinnamon increases to $4/jar and the price of nutmeg falls to $5/jar, but Geraldo's income remain the same.

What is the equation for Geraldo's budget constraint in 2022? What is the equation for Geraldo's budget constraint in 2023?
In 2022, what are the maximum amounts of cinnamon and nutmeg Geraldo can purchase (when he purchases zero of the other)? In 2023, what are the maximum amounts? Draw a diagram showing the two budget lines, with cinnamon on the vertical axis and nutmeg on the horizontal axis, and the intercepts properly labeled.

Suppose that Geraldo was consuming 14 jars of cinnamon and 6 jars of nutmeg in 2022. Using the Laspeyres method, compute what his real income change would be from 2022 to 2023.

Suppose that we didn't know what bundle Geraldo was consuming in 2022. However, we do know that the change in Geraldo's real income between 2022 and 2023 is the best it possibly could have been for him. (That is, the greatest increase that could have possibly occurred.)

What bundle must he have consumed in 2022 for this to be the case? Using the Laspeyres method, compute what his real income change would be from 2022 to 2023.

Reference no: EM133633532

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