A consumer has an income of 30,000 a year and divides this income between buying food and
Question:
A consumer has an income of €30,000 a year and divides this income between buying food and spending on leisure.
The average price of a unit of food is €15 and the average price of a unit of leisure is €10. Draw the consumer’s budget constraint and draw an indifference curve to show the consumer’s optimum.
Assume that the price of food rises in three stages over the year in €10 increments but that the price of leisure stays the same. Draw the consumer’s new budget constraints, identify the new optimum and show the price–consumption path.
Use the price–consumption path to derive the demand curve for food.
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