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Videos •7.Judy lives in Utah and has $60 per week to spend on wine and chocolate. Suppose that the price of wine is $12 per bottle and the price of chocolate is $2 per bar. a.Draw Judy’s budget constraint for wine and chocolate, putting wine on the x-axis. Be sure to label the x-intercept, the y-intercept and the slope of the budget constraint. b.Now suppose that Judy moves to California where the price of wine is only $10 per bottle. Suppose that the price of candy bars is still $2 and suppose that Judy still has $60 per week to spend on wine and chocolate. On the same graph as above, draw Judy’s budget constraint for wine and chocolate in California. Be sure to label the x-intercept, the y-intercept and the slope of the budget constraint. c.If Judy moves from California to Utah, show what will happen to her optimal consumption of wine? If you need to make any additional assumptions, state clearly what they are. d.If Judy only cares about wine and chocolate, will she be better off living in California or Utah? •a.See below.b.See below.
c.See below. In the picture, it is assumed that chocolate and wine aresubstitutes.d.She’ll be better off in California because the price of wine is lower there. As aresult, her affordable set will be bigger in California than Utah and she’ll beable to achieve a higher level of utility.Wine Chocolate 5 30 |Slope|=6 6 •A •B •C SE IE TE |Slope|=5