Question
Keeley allocates all her income between books and chocolate to maximize utility. You can assume that she has regular preferences, i.e., her indifference curves are
Keeley allocates all her income between books and chocolate to maximize utility. You can assume that she has regular preferences, i.e., her indifference curves are strictly convex. Suppose the price of a book is 10 and the price of a kg of chocolate is 10 and income is 180 Explain all answers a) to d) carefully. a) Using the information above and your student number, draw the budget constraint with chocolate on the vertical (Y) axis and books on the horizontal (X) axis. Explain your answer.
b) Suppose, in maximizing utility, that Keely choose to consume 4 books. How many kg of chocolate will she consume? Illustrate where she maximizes utility by drawing an indifference curve with the budget constraint that you have already drawn. Explain your diagram carefully.[20 points] c) Suppose now that Keely can join a book club at a cost of 40. With this membership of the club, she will get 6 free books and any extra books ( above 6) that she wants to consume still will cost 10 each. Draw the new budget constraint and explain your answer.[ 25 points] d) Will Keeley join the book club, explain why/why not. [25 points] e) If you follow instructions for scanning and uploading
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