Question

Each week a U.S. consumer may prepare home cooked meals (9) as well as eat out at a restaurant (9). Suppose the average price of a home cooked meal is p. =15, the price of eating out is p, = 20, and average spending is $300 per week. The typical consumer picks q, and q2 to maximize utility function U = 7.subject to their budget.

Answer 1

1 Income Consumption cwire : al q2.2

5. The above diagram show the budget line and indifference curve. Initially, the optimal bundle was at point E consuming $q1_{0}$ quantity of good q1 and $q2_{0}$ quantity of good q2. when the budget of the consumers increases, the budget line shifts towards right along with the indifference curve. Now, the optimal bundle also shifts fro point E to point  $E^{'}$.

The income consumption curve is the upward sloping curve that joins the point of optimal bundle.