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PROBLEM #6 [6 points]: Suppose that Harry splits his income between broomsticks and magic wands. Originally, broomsticks cost $150 and Harry buys 4 broomsticks per
PROBLEM #6 [6 points]: Suppose that Harry splits his income between broomsticks and magic wands. Originally, broomsticks cost $150 and Harry buys 4 broomsticks per month. Magic wands cost $60 and Harry buys 10 magic wands per month. Suppose that broomsticks increase in price to $200 and the price of magic wands falls to $40. Under these new prices Harry buys 1 broomstick and 25 magic wands per month. a) Graph Harry's original and "new" budget lines in the same diagram with magic wands on the horizontal axis and broomsticks on the vertical axis (be sure to indicate his final choices of goods for each budget line) [3 points] Broomsticks Magic Wands b) Is Harry "better off" or "worse off" when he faces the "new" prices? [1 point] c) Explain why Harry is "better off" or "worse off" when he faces the "new" prices. [2 points]
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