Question
Emma consumes only two goods: Good A and Good B. Emma has a monthly salary of $1,000 from her part-time job. The price of Good
Emma consumes only two goods: Good A and Good B. Emma has a monthly salary of $1,000 from her part-time job. The price of Good A is $10. The price of Good B is $2. Emma currently consumes 5 units of Good A and consumes 25 units of Good B in a month.
(1) Draw Emma's budget constraint and optimal consumption bundle. Please put Good A on the x-axis and Good B on the y-axis.
(2) Emma has just received a 5% pay increase. The price of Good A and the price of Good B have increased by 5% as well due to inflation. Draw Emma's new budget constraint and optimal consumption bundle. Please put Good A on the x-axis and Good B on the y-axis. How many units of Good A does she consume? How many units of Good B does she consume?
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