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Indifference curves and budget constraint

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Reference no: EM131096169

Ben enjoys coffee (C) and tea (T) according to the function U = (C, T) = c+t . The price of coffee is $2 and the price of tea is $1.

  1. If Ben's income is $4, how much coffee and tea will she buy? Draw a graph of Billie's indifference curves and budget constraint in this situation and show how to use the graph to answer this question. 
  2. Now suppose the price of coffee drops to $1. Will Billie be better off?  How much coffee and tea will she buy now?  What does the diagram now look like?

Reference no: EM131096169

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