Question
1.Renate lives near Chicago and likes to go downtown by bus. Her pocket money is 200 dollars a month. The bus ticket costs her 2
1.Renate lives near Chicago and likes to go downtown by bus. Her pocket money is 200 dollars a month. The bus ticket costs her 2 dollars for a roundtrip. Renate has the option of buying a bus pass for 100 dollars. If she buys the bus pass, then the roundtrip ticket costs her 1 dollar. (Assume that the price of the composite good is $1.)
Draw a figure that illustrates Renate's budget lines and indifference curves and optimal allocations before and after buying the bus pass. The composite good should be depicted on the vertical axis. (No calculation required, just illustrate the different cases assuming arbitrary allocations.)
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