Question 1. Haya consumes two beverages: San Pellegrino (i.e. fancy) water, and tap water. She has an income of $100 to spend on these goods per month. The price of tap water is $0.30 per glass, and the price of fancy water is $10 per glass.
Haya tells you that for her, fancy and tap water are neither perfect substitutes nor perfect complements, and that given her budget and these prices, her best affordable consumption bundle is 4 glasses of San Pellegrino and 200 glasses of tap water. (She gets very thirsty.)
Now suppose the price of fancy water rises to $20 per glass, and the price of tap water falls to $0.10 per glass. Is Haya better off, worse off, or indifferent as a result of the price change? Why?
Question 2. Alanoud likes hamburgers and pizza. At her current level of consumption, her marginal rate of substitution of hamburgers for slices of pizza is 2. Explain what this means. If she increases her consumption of hamburgers, will her MRS (relinquishing hamburgers for additional pizza) increase or decrease?