(Solution) - Josie gets great pleasure from eating flan Her preferences for -(2025 Original AI-Free Solution)

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Academic Level: Undergrad. (yrs 3-4)

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Josie gets great pleasure from eating flan. Her preferences for flan and tofu are given in the graph at right. Suppose that Josie?s income is $40, and that tofu costs $1.

a. Draw budget constraints for Josie given three different prices for flan: $5, $8, and $10.
b. Find the optimal consumption of flan at each of those prices.
c. What will Josie?s demand curve for flan look like? Describe it in terms of the elasticity of demand.
d. What can you say about the size of the income and substitution effects of a change in the price of flan?