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Assume that for a given consumer, she consumes both Dreyer's and Ben and Jerry's ice cream. At her current level of consumption, the marginal utility
Assume that for a given consumer, she consumes both Dreyer's and Ben and Jerry's ice cream. At her current level of consumption, the marginal utility of Dreyer's ice cream is 120 utils and the marginal utility of Ben and Jerry's ice cream is 160 utils. The price of Dreyer's is $ 4 per gallon and the price of Ben and Jerry's is $ 5 per gallon. A. Is the consumer maximizing her utility at her current level of consumption? Why or why not? If not, what could she do to increase her utility? Explain. B. Assume that she has $ 200 per year to spend on ice cream and only buys these two brands. Draw her budget constraint with Dreyer's on the horizontal axis and Ben and Jerry's on the vertical axis. Now assume that the price of Ben and Jerrys' falls to $ 4 per gallon. Draw your new budget constraint on the same graph. Label the first budget constraint B1 and the new budget constraint B2. C. If the price of one good falls (and the price of the other good and consumer income remains constant). How will the substitution and income effects determine what happens to the
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