Erin now has preferences such that she prefers cash gift

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Erin has $120 to spend on games (X) and all other goods (Y). Games cost $12 each, and all other goods (AOG) have a composite price of $1 each. Assume that Erin's preferences are represented by convex indifference curves. Erin's cousin wants to give her either 3 games or $36 for her birthday. a. Assume that Erin has preferences such that she is indifferent between the two gifts. Using an indifference map and budget line analysis, show Erin's optimal choice before and after the gift. b. Assume that Erin now has preferences such that she prefers the cash gift. Using a separate graph from part (a), graph Erin's optimal choice before and after gift.

Reference no: EM13150402

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