It is Saturday night, and Hanna is looking to maximize her utility by deciding how many Pop Tarts and Hot Pockets to purchase. She has $12 to spend. Hot Pockets cost $2 each, and Pop Tarts cost $1 each.
a. Draw the budget constraint (with Hot Pockets on the y-axis) for Hanna based on the information provided. Draw several of her indifference curves, including one that shows the optimal choice she will make. Label this point with how much of each good she is buying. (Note: just pick any affordable bundle around where your point is, you are not solving for this).
b. Hanna trips over a crack in the sidewalk and awkwardly falls, but luckily finds a $2 bill on the ground, and decides to add it to the Saturday night fund. On a new graph, show how this will affect Hanna’s budget constraint. Using indifference curves, show what will happen to her utility. (Note: this means you will show the choice both before and after the budget changes).