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Suppose that Michael and Dwight each have a $60 weekly entertainment budget. They pay the same prices for two goods, "an evening reading books" (an ERB) and "an evening of beer and bowling" (a BAB). The price of an ERB is $20, and the price of a BAB is also $20. Michael prefers an evening reading books (ERB), and Dwight prefers an evening of beer and bowling (BAB). Suppose ERBs is measured on the vertical axis and BAB is measured on the horizontal axis. a. What is the linear equation for the budget line? b. Draw Michael's indifference curve and Dwight's indifference curve on the diagram. Briefly describe how the diagram depicts their different tastes.
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