Question
Po, a kung fu panda, spends all his income on two goods: dumplings (d) and noodles (n). His income is $20. Assume that dumplings cost
Po, a kung fu panda, spends all his income on two goods: dumplings (d) and noodles (n). His income is $20. Assume that dumplings cost $1 and noodles costs $2 per unit.
(a)Draw Po's budget constraint. Place dumplings on thex-axis. Be sure to fully label your diagram.
(b)Assume that Po likes dumplings three times as much as noodles no matter how many noodles or dumplings he consumes. Draw two or three of his indifference curves on your diagram from part (a) and indicate Po's optimal consumption bundle. How many dumpling and noodles will he consume at this optimal bundle?
(c)Suppose the price of dumplings rises from $1 to $4 per unit. How will his optimal consumption bundle change? Show this on your diagram from part (a).
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