Question
I like to eat mozzarella cheese and tomatoes together. I like the ingredients in a specific combination - one slice of mozzarella combined with one
I like to eat mozzarella cheese and tomatoes together. I like the ingredients in a specific combination - one slice of mozzarella combined with one tomato. Giving me a second slice of mozzarella, without giving me a second tomato, does not raise my utility. Similarly, giving me a second tomato, without giving me a second slice of mozzarella, does not raise my utility.
a. Draw a few indifference curves, with tomatoes on the vertical axis and mozzarella slices on the horizontal axis, representing my tastes.
b. Suppose I have $10 to spend and that the price of a mozzarella slice is $2 while the price of a tomato is $3. How many tomatoes and slices of mozzarella will I buy?
c. Suppose that the price of mozzarella rises to $7 (!) while the price of tomatoes remains unchanged. Draw the new budget constraint resulting from this price change, and illustrate the income and substitution effects of this increase in the price of mozzarella on my purchase of tomatoes. Will I now purchase more, or fewer, tomatoes?
d. Is the substitution effect of this price change on my purchases of tomatoes larger, or smaller, than the income effect?
Are tomatoes and mozzarella substitute goods or complementary goods?
Explain.
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