Assume that Mei has $100 per month to divide between dinners at a Chinese restaruant and evenings at Zanzibar, a local pub. Assume that going to Zanzibar costs $20 and eating at the Chinese costs $10. Suppose Mei spends two evenings at Zanzibar and eats six times at the Chinese restaurant.
a) Draw the budget constraint and show that she can afford six dinners and two evenings at Zanzibaar.
b) Assume Mei comes into some money and can now spend $200 per month. Draw new constraint
c) As a result of the increase in income, Mei decides to spend eight evenings at Zanzibar and Chinese four times. What kind of a good is Chinese food? Zanzibar?
d) What part of the increase in Zanzibar trips is due to the income effect, and what is to the substitution? Explain.