Question: Ben has $100 per month in income, which he can spend on two goods: beef and chicken. Beef costs $5 per pound and chicken cost $1 per pound.

i) Graph Ben’s budget line, putting steak on the y-axis and potatoes on the x-axis. What is the slope of this budget line?

ii) Ben likes a pound of beef as much as he likes four pounds of chicken independently of how much he eats. In other words, Ben’s marginal utility for chicken and beef is constant. Draw the map of indifference curves that describes Ben’s preferences.

iii) Combine the two obtained graphs and find the quantity that maximizes Ben’s utility. How does the ratio of marginal valuations of beef and chicken compare to the ratio of prices?

iv) Now suppose that Ben gets a raise to $150 per month, but the price of beef decreases to $3 while the price of chicken remains unchanged. Draw Ben’s new budget line and find the slope of this line.

v) Find Ben’s optimal consumption level at these prices and draw the new indifference curve. What has happened to his consumption of steak and potatoes as compared to part (ii)?