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You are allocating money between pizza and Chinese food over a month. You like a variety.
(a) Letting C denote the quantity of Chinese meals you consume in a month and P denote the quantity of pizza, construct a diagram and draw some indifference curves that might represent your preferences.
(b) Suppose that you have $100 to spend per month on the two and pizzas cost $5 each and Chinese meals cost $10. Draw your budget line and an indifference curve with a consumption level that you regard as being optimal.
(c) If the price of pizza falls, show how your optimal consumption might change? Could you perhaps consume more Chinese food after the change?
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1. Why does the quantity of salt demanded tend to be unresponsive to changes in its price?
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