The following question will test your understanding of how the constraint can influence the choices of a consumer. a) (2 points) Let Arjun's income be $100. Arjun buys two goods: Ketchup Chips and Maple Syrup. If the price of ketchup chips is Pc = 4 and the price of maple syrup is I'M = 10, then what is Arjun's budget constraint? What is his real income in terms of ketchup chips? (Reminder: real income represents what a consumer can afford in terms of goods.) b) (6 points) Suppose the store Arjun shops at has the following deals: (i) If you buy 15 bags of ketchup chips, then you can get 5 free or (ii) If you buy 6 bottles of maple syrup you can get 2 bottles free. Draw the budget constraint for deal (i) as a solid line. Draw the budget constraint for deal. (ii) as a dashed line. Sketch indifference curves that are consistent with Arjun preferring deal (i) (as a solid line) to deal (ii) (as a dashed line). Make sure to label the axes, curves, and all important points. c) (4 points) Suppose Arjun has an income of $120 instead of the deals offered by the store. Could Arjun be better off than in part (b)? Explain why or why not. d) (4 points) Return to the budget constraint from part (a) (where Y = $100, Pc = $4, and PM = $10). Would Arjun prefer a 201% income tax or for the price of chips to increase to $5? (Assume the store deals have expired, i.e. part (b) is no longer feasible.) Make sure to explain your answer. (Hint: It may help to sketch the two different possibilities.) CS Scanned with CamScanner + Drag and drop your files or click to browse