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Economics

Iggy only consumes two goods: coffee and cigarettes. Three cigarettes can be traded for one cup of coffee in a free market, or one cup coffee can be traded for three cigarettes. Iggy initially has 12 cigarettes and 5 cups of coffees.

a. Find an equation that gives every bundle of cigarettes and coffee that Iggy could trade for.

b. Iggy has a MRS = -5 when he is holding his initial bundles (cigs, coffee)=(12,5). Given the rate of exchange, would Iggy trade cigarettes for coffee, or coffee for cigarettes?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91423269

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