Consider our picky coffee drinker 8oz coffee:2oz milk. Price of coffee is $0.10oz, price milk $0.05.

1

• Consider our picky coffee drinker (8oz coffee2oz
  milk). Price of coffee is 0.10/oz, price milk
  0.05. Weekly beverage budget is 9.00.
• a) Initial utility-maximizing bundle?
• b) Now suppose pC ? 0.07, pM ? 0.02. What
  are the income, substitution effects?
• 2. What do the budget lines look like for
  consumers who have a budget of 100 and
• a) Gets 200 free minutes of calling, then have
  to pay 0.10/minute?
• b) Gets 100 worth of food stamps, then have to
  pay 2/unit?
• (In both cases, think of the good in question
  relative to some composite good X with price 1)