Inayah is a rational consumer who consumes milk and cookies only from her monthly income of Rs. 1,500. If the price of milk is Rs. 500 per liter and the price of one pack of cookie is Rs. 300, answer the following questions: If Inayah spends all of her income on consuming one good, find: 1.how much cookies she could afford? 2.how much milk she could consume?

Inayah is a rational consumer who consumes milk and cookies only from her monthly income of Rs. 1,500. If the price of milk is Rs. 500 per liter and the price of one pack of cookie is Rs. 300, answer the following questions: If Inayah spends all of her income on consuming one good, find: 1.how much cookies she could afford? 2.how much milk she could consume?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter10: Consumer Choice Theory

Section: Chapter Questions

Problem 3P

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Inayah is a rational consumer who consumes milk and cookies only from her monthly income of Rs. 1,500. If the price of milk is Rs. 500 per liter and the price of one pack of cookie is Rs. 300, answer the following questions: Given the information above write the equation of the budget line and illustrate the same through the two-dimensional labeled diagram. If Inayah spends all of her income on consuming one good, find: how much cookies she could afford? how much milk she could consume? Identify the impact of an increase in the income from Rs. 1,500 to Rs. 1,800 on Inayah’s consumption level. Also illustrate it using the two-dimensional labeled diagram. Assume that Inayah’s consumption of milk and cookies give her following level of utility: Quantity MU milk MU cookies 1 400 450 2 350 200 3 200 150 4 100 100 5 70 60 6 30 30 7 0 0 Find the optimal level of consumption. Find the consumer…