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Martha has $150 to spend each week and cannot borrow money She buys Malted Milk Balls and the composite good Suppose that Malted Milk Balls cost $2.50 per bag and the composite good costs

1. Martha has $150 to spend each week and cannot borrow money. She buys Malted Milk Balls and the composite good. Suppose that Malted Milk Balls cost $2.50 per bag and the composite good costs $1 per unit.

a. Sketch Martha’s budget constraint.

b. What is the opportunity cost, in terms of bags of Malted Milk Balls, of an additional unit of the composite good?

2. In Problem 5, suppose that in an inflationary period the price of the composite good increases to $1.50 per unit, but the price of Malted Milk Balls remains the same.

a. Sketch the new budget constraint.

b. What is the opportunity cost of an additional unit of the composite good?

May 01 2020 View more View Less

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