Jim buys only milk and cookies.

a. In year 1, Jim earns $100, milk costs $2 per quart, and cookies cost $4 per dozen. Draw Jim’s budget constraint.

b. Now suppose that all prices increase by 10 percent in year 2 and that Jim’s salary increases by 10 percent as well. Draw Jim’s new budget constraint. How would Jim’s optimal combination of milk and cookies in year 2 compare to his optimal combination in year 1?