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Patricia just got off a plan in Russia. She has two different type of currency in her wallet, she has the US dollar and the
Patricia just got off a plan in Russia. She has two different type of currency in her wallet, she has the US dollar and the Russian ruble. The small village right out side of the airport only sells two type of goods, pastila and pizza. This particular village is very unique. Though they are in Russian territory, to purchase each good, they require you pay a Russian price and a U.S. price. The following is a summary of this type of village economy. Because of this unique payment structure, each good has a US price and a Russian price and because the village is so small, there are no currency exchange, you cannot trade one currency for another. Luckily for Patricia, she loves both pastila and pizza, so she would prefer more of both goods to less. In Russian ruble, both the pastila and the pizza costs 1 ruble. In US dollars, the pastila costs 2 dollars and the pizza costs 6 dollars. (a) Looking in her wallet, Patricia realizes she has 10 ruble and 30 dollars. On a graph, shade in the budget set containing all the bundles of pastila and pizza Patricia can afford given her two budget constraints (Russian and American). Remember, Patricia has to have enough Russian and US money to buy both goods. (b) Samuel decides to meet Patricia in this village. Sam looks in his wallet and has 30 US dollars, but, luckily for him, he went to a currency exchange prior to entering the village, so he has 20 Russian ruble. Why wont Sam spend his entire Russian ruble no matter how hungry he is for pastila and pizza
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