Question: Last month, Barbie bought three boxes of cereal at a price of 3dollars each with her limited income. This week the price of cereal rose to $3.50 per box. Assume Barbie is an utility maximizer.

A) Assuming that Barbie’s preferences satisfy all the assumptions specified in class, indicate in a diagram Barbie’s optimal bundles (before and after the price increase). Is she better off or worse off?

B) Suppose her father sends her more money so she can buy the initial bundle. Is she the same, better off or worse off? Use the diagram above to complement your answer.