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Miley Cyrus, under the conditions of a court order, is required to enroll Summer session at Kardashian College. She is granted $100 a week to

Miley Cyrus, under the conditions of a court order, is required to enroll Summer session at Kardashian College. She is granted $100 a week to spend: either on energy drinks at $2.75 each or on gasoline for her Bentley at $3.00 per gallon.

  • a) Draw Miley's opportunity set. Label her feasible set. (Put gasoline on horizontal axis.)
  • (Suggestion: Draw a sufficiently large diagram as you will add more items to the same graph in subsequent parts.)
  • b) In part a), what is the trade-off (opportunity cost) of energy drinks in terms of gasoline?
  • c) In the graph for part a) above, now draw each new budget constraint she would face if:
    • i) The price of energy drinks fell to $2.25, ceteris paribus;
    • ii) The price of gasoline rose to $5.00 per gallon, ceteris paribus;
  • d) In each case in part c), how does the trade-off (opportunity cost) of energy drinks in terms of gasoline change.

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