Question

LATTES t 10. Deriving demand from an indifference map Lucia lives in Philadelphia and enjoys drinking lattes and eating scones. The price of a latte is held constant at $4 throughout this problem. On the following graph, the purple curves (I I2) represent two of Lucia's indifference curves. The lines BC and BC2 show two budget and constraints. Points X and Y show Lucia's optimum consumption bundles subject to these budget constraints. 20 18 16 14 12 10 E

Answer 1

Aro! punchase 18 lattens a Can mokt Fnances At the 1 SCones. latte given The pnce of by Can detenmine Fana nces We the Income of on the assuming thak Fnances spends his incorme q hatte Given the price of latte ih $, and Consumed maximum / Price Income Consumption Maximum Income thus, 2 Fance s available inCome Consume eithen lattes. Can at 8C The Consume n q SConeS. lattes 18 He Can Consume

The income avai lable 50 The price af Sco nes 68 50 pnic e is and Consumpti on ih bunitES at C2 6 attes punc hase d The Amount 0flattes lat tes i spent on income Total Armount of feft fon Consumning Scones Income 48 At C2 12 Scones. Consumed The 5Cones numben 5ince SCones is 5pent on tach Scone

HConsumption of Pnice of 5cone i12units Scone when Fnances 's budget Phice Consumption Constnaint s... BC BC2 graph on the gnesults plot the abore G, 8 Demand Euantity P1ice