Rudy spends all of his income on two goods: cokes and cigarettes. He consumes them in fixed proportions, 2 cigarettes/coke. Suppose cokes cost $1/can and cigarettes are $0.50 each.
a. If Rudy spends $10 per day on these goods, draw a utility/budget constraint graph to show his optimal consumption amounts.
b. How would your answer change if cokes now cost $1.50/can.
c. Calculate his elasticity of demand for coke. (arc or mp formula)
d. What income would be necessary to purchase the original bundle in part a?