Question
Assume a person has an income of $120 and can only buy two goods - Good A and Good B. The prices of each good
Assume a person has an income of $120 and can only buy two goods - Good A and Good B. The prices of each good are as follows:
Good A = $3 Good B = $4
Draw the budget constraint that this person would face. Place Good A on the horizontal axis and Good B on the vertical axis. Make sure to identify the horizontal and vertical intercept with the appropriate quantity. Now superimpose the following indifference curve on the budget constraint (you can draw it by hand) and determine the optimal quantities of Good A and Good B that the consumer will consume. You don't need to identify actual numerical amounts. Just indicate on each axis by labeling them QA* and QB* to indicate the optimal combination of goods.
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