Question: Suppose a consumer only buys two goods-hot dogs and hamburgers. Suppose the price of hot dogs is $1, the price of hamburgers is $2, and the consumer's income is $20.
a. Plot the consumer's budget constraint in Exhibit 1. Measure the quantity of hot dogs on the vertical axis and the quantity of hamburgers on the horizontal axis. Explicitly plot the points on the budget constraint associated with the even numbered quantities of hamburgers (0,2,4,6 ...)
b. Suppose the individual chooses to consume 6 hamburgers. What is the maximum amount of hot dogs that he can afford? Draw an indifference curve on the figure above that establishes this bundle of goods as the optimum.
c. What is the slope of the budget constraint? What is the slope of the consumer's indifference curve at the optimum? What is the relationship between the slope of the budget constraint and the slope of the indifference curve at the optimum? What is the economic interpretation of this relationship?
d. Explain why any other point on the budget constraint must be inferior to the optimum.