Question
Sarah has $20 to spend on slices of pizza and cans of diet cola. Pizza costs $1 per slice, and diet cola costs $0.50 per
Sarah has $20 to spend on slices of pizza and cans of diet cola. Pizza costs $1 per slice, and diet cola costs $0.50 per can.
a. Graph Sarah's budget line for pizza and diet cola (5 points).
b. Suppose Sarah's total budget for pizza and diet cola increases to $25. How does her budget line shift (5 points)?
c. Suppose the pizza prices increases from $1 to $2. How does her budget line shift (5 points)?
d. Draw a set of indifference curves for the situation in which pizza is a normal good, one for the situation in which pizza is an inferior good, and the last one for the case of Giffen good (15 points).
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