Question

Jayram buys only coffee and pizza.

a. In year 1, Jayram earns $500, coffee costs $2 per, and pizza cost $5 . Draw Jayram’s budget constraint. (5 marks)

b. Now suppose that all prices remain constant in year two and that Jayaram's salary increases by 10 percent as well. Draw Jayram’s new budget constraint. How would Jayram’s optimal combination of coffee and pizza in a year 2 compare to his optimal combination in year 1?​

Answer 1

Explanation:

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