The price of good X is $2.00 and the price of good Y is $1.00. Last year, the price of good X was $1.00 and the price of good Y was $2.00.
a. If a consumer has $100, draw their budget line (on the same diagram) for each year (label them accordingly).
b. Add as many indifference curves as needed to show a situation in which the consumer is no better or worse off this year than they were last year. Be sure to label their optimal baskets for both years. Explain why what you have drawn is correct.
c. On a new diagram with the two budget lines, add as many indifference curves as needed to show a situation in which the consumer is better off this year than they were last year. Be sure to label their optimal baskets for both years. Explain why what you have drawn is correct.