Use the following information about Adam's preferences to answer the questions below.
Soda TU Chips TU
0 0 0 0
1 50 1 60
2 90 2 110
3 120 3 150
4 145 4 180
5 160 5 200
6 170 6 210
7 175 7 215
1. Income is $2.00, the price of soda is $0.25, and the price of chips is $0.50. Construct Adam's budget line.
2. What is the utility maximizing combination of soda and chips? Indicate this combination on the budget line.
3. What is the TU at this combination?
4. Could Adam afford to buy three chips and two sodas?
5. What is the TU of three chips and two sodas?
6. Use the concept of marginal utility per dollar to explain why three chips and two sodas is not the utility maximizing combination.
7. The Ps now becomes $1.00; everything else is the same. Show how the budget line has changed.
8. How has the relative price of soda changed?
9. What is the new utility maximizing combination? Indicate this combination on the new budget line. What is the TU at this combination?
10. Construct the demand curve for soda.