Gin and Herring

Roland is a warrior from the land of the midnight sun. He consumes only gin and pickled herring. Suppose the price of a shot of gin is $2, the price of herring is $4, and Roland has an income of $80.

1. Draw Roland’s budget constraint. Show which bundles are in his feasible set and which are not. Briefly discuss what the slope and intercepts of the budget constraint mean.
2. Suppose that Roland must wait an hour in line for each shot of gin or plate of pickled herring he buys. If Roland has up to 4 hours to spend in line, show his feasible set.
3. Now suppose that the government imposes a 100% tax on gin so the price to Roland rises to $4 per shot. Show how Roland’s budget constraint changes. Discuss what happened to his feasible set. Is he likely to care that the price has risen?