Question
Dianas favorite past-times are playing miniature golf and racing go-karts. In her 2023 annual budget she included $800 for entertainment. In the city where she
Dianas favorite past-times are playing miniature golf and racing go-karts. In her 2023 annual budget she included $800 for entertainment. In the city where she lives, a game of mini-golf costs $10 and one go-kart race costs $40. Draw an appropriate economic graph indicating Diana's budget constraint and an indifference curve indicating optimum consumption (assume the equal-marginal principle holds true) for 2023. Then suppose that in 2024, Diana decides to decrease her entertainment budget by 25% because she wants to save money for a new car. At the same time, prices for mini-golf and go-kart racing have increased by 15%. Calculate Aarya's new budget constraint, prices, and optimum consumption for 2024. On the same graph as 2023, draw Diana's 2024 budget constraint and optimum consumption indifference curve.
Clearly demonstrate how the optimal combination of past-times in 2023 compares to the optimal combination in year 2024. Draw your own graph on a piece of paper . Clearly label all axes and lines. Provide all necessary details.
Show your calculations of the equal-marginal principle, budget decrease, and price increases. Be sure your graph clearly demonstrates these numbers.
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