Analyze the problem in Exercise 5.1 making use of Equation 4.16.
Refer to Exercise 5.1,
Remy spends her weekly income of $30 on chocolate, q1, and shampoo, q2. Initially, when the prices are p1 = $2 = p2, she buys q1 = 10 and q2 = 5. After the prices change to p1 = $1 and p2 = $3, she purchases q1 = 6 and q2 = 8. Draw her budget lines and choices in a diagram. Use a revealed preference argument to discuss whether or not she is maximizing her utility before and after the price changes?
Equation 4.16,
(paM - pbM) (Ma - Mb) ( 0.