What is the trade-off of energy drinks in terms of gasoline

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Joseph is granted $50 a week to spend: either on energy drinks at $2.50 each or on gasoline for his car at $4.00 per gallon.

a) Draw Joseph's opportunity set. Label his feasible set. (Put gasoline on horizontal axis.)

(Draw a sufficiently large diagram as you will add more items to the same graph in subsequent parts.)

b) In part a), what is the trade-off (opportunity cost) of energy drinks in terms of gasoline?

c) In the graph for part a) above, now draw each new budget constraint he would face if:

i) The price of energy drinks fell to $2

ii) The price of gasoline rose to $4.50 per gallon

d) In each case in part c), how does the trade-off (opportunity cost) of energy drinks in terms of gasoline change.

Reference no: EM13895959

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