Karen receives an allowance of RM5 per week. She spends all her allowance on ice

cream cones and cans of Lime Fizz soda.

a) If the price of ice cream cones is RM0.50 per cone and the price of Lime Fizz is RM1

per can, draw a diagram showing Karen's budget constraint with ice cream cones on

vertical axis. Be sure to indicate in your diagram the maximum number of ice cream

cones and the maximum number of cans of Lime Fizz that Karen can buy.

(2 marks)

b) Derive Karen's budget equation.

(1.5 marks)

c) Karen buys 6 ice cream cones and 2 cans of Lime Fizz. Draw an indifference curve

representing Karen's choice, assuming she has chosen the optimal combination.

(1.5 marks)