Analyzing the budget line & indifference map for two goods food & clothing.
The diagram below shows the budget line and the indifference map of a consumer for two products, food and clothing.
1.Compute the four points w, x, y, and z in terms of total utility and also affordability and describe why point z is the optional consumption point.
2.If there is a drop in the price of clothing, how will the budget line be affect? Illustrate what will happen to the consumption of clothing is a normal good?