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(Solved): Derive and plot Olivia's Engel curve for pie if she eats pie only a la mode and does not eat either ...



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Derive and plot Olivia's Engel curve for pie if she eats pie only a la mode and does not eat either pie or ice cream alone (pie and ice cream are complements). Olivia's preferences are illustrated by the indifference curves in the figure to the right. Assume the price of pie, , is and the price of ice cream, , is . Use the line drawing tool to draw the Engel curve for pie. Label this line 'Engel curve'. Carefully follow the instructions above and only draw the required objects.


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The answer to your given problem is :

Price of pie= $1.50
Price of icecream = $0.75


Interpret from given graph :

When budget line is L1 , then it joins on the horizontal axis at 6.
which means that income =   (shows income).



And for this budget line , optimal consumption of pie is 4.





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