Thomas consumes only pizzas (Z) and burritos (B). His utility function is given by U(Z, B) = Z * B. The price of a pizza is pZ and the price of a burrito is pB. Thomas has Y dollars.
(a) Draw Thomas's indifference curves and budget line if pZ = 20, pB = 10, Y = 100.
(b) Find the optimal amount of pizzas and burritos Thomas will buy if pZ = 20, pB = 10, Y = 200.
(c) Derive Thomas's demand function for pizzas if pB = 5 and Y = 5.
(d) Is Thomas better off if i) pizzas and burritos become twice cheaper, or if ii) his income doubles?
(e) Suppose Thomas enters a cafeteria and discovers that pZ = 10 and pB = 25 (burritos are really delicious there). Thomas has Y = 200 in his pocket and would like to make an optimal choice. However, he is told that there are only two burritos left. Draw the budget constraint and find the optimal consumption bundle.