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For Crandall, cheese cubes and crackers are perfect complements: he wants to consume exactly 1 cheese cube with each cracker. He has $2.40 to spend on cheese and crackers. One cheese cube costs 20 cents, and 1 cracker costs 10 cents. Draw a diagram, with crackers on the horizontal axis and cheese cubes on the vertical axis, to answer the following questions:

(a) Which bundle will Crandall consume?
(b) The price of crackers rises to 20 cents. How many cheese cubes and how many crackers will Crandall consume?
(c) Show the income and substitution effects from this price rise.

Sagot :

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