dolution

 

1. Debra travels to Mexico and enjoys both burritos and Coronas. The diagram shows her utility-maximizing choices.

                                               

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a. If the budget line is line 1, describe why point A is Debra’s utility-maximizing choice.

 

b. What event could explain why the budget line moves to line 2?

 

c. What is the meaning of point B in the figure?

 

d. Suppose Coronas are a normal good for Debra. What does this restriction imply about the location of point Is this restriction satisfied in the diagram?

 

e. Suppose Coronas are an inferior good for Debra. How would this information be reflected in her choice following the move of the budget line to line 2?

 

 
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