Question

'Paul loves hot drinks. and he has a part of his weekly budget earmarked for buying- them. In the diagram below. you can nd a budget line that represents how much tea and coffee Paul can afford within his budget for hot drinks and an example of an indifference curve. Test Hi If) Coffee a} Use the diagram to construct Paul's individual demand curve for coffee by com pleting the following steps: Amend the diagram suitably:r to find Paul's optimal choice of hot drinks if the price of a cup of coffee increases to 1.50 and the tea price remains constant. Repeat this step for a coffee price of 2 (again, the tea price remains constant). Draw a new diagram ['Diagram 2') with Paul's individual demand curve for coffee. h) Pauline's preferences are identical to Paul's. Add the market demand curve for the market for coffee to 1your 'Diagram 2' {part a}, under the assumption that Paul and Pauline are the only.r consumers in the market. tillearlvr indicate the relative quantities for the three prices for coffee considered above. 1. 1.50. and E2