The following question will test your understanding of how the constraint can inuence the choices of a consumer. a) (2 points) Let Arjun's income be $1 00. Arjun buys two goods: Ketchup Chips and Maple Syrup. if the price of ketchup chips is PC = 4 and the price of maple syrup ls PM = 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: (2') If you buy 15 bags of ketchup chips, then you an 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 (1') 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 (1') (as a solid line) to deal (ii) (as a dashed line). Make sure to label the axes, curves, and all important points. 7 c) (ll 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. i} d) (4 points) Return to the budget constraint from part (a) (where Y = 5100, PC = $4, and PM = $10). Would Arjun prefera ZO\\% income tax or for the price of chips to increase to $5? (Asstime the store deals have expired, Le. part (b) is no longer feasible.) Make sure to explain your answer. (Hint; it may help to sketch the two different possibilities.) ' Scanned-with-Gameeanner ------------------------------------------------------------------ ; 4- Drag and drop your files or click to browse... t r r 1 r n