Illustrate budget constraint and optimal bundle, Macroeconomics

Danny is an investment banker and has income I = 300. When prices are px = 10 and

py = 20, Danny consumes the bundle (x; y) = (6; 12).

1. Illustrate Danny's budget constraint and optimal bundle.

2. Suppose that prices change to px = 20 and py = 10. Draw Danny's new budget constraint on the same set of axes as his original budget constraint.

3. Danny is a smart guy and always makes utility maximizing choices. According to revealed preference, which bundles on his new budget constraint will he definitely not consume?

 

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