Hugo view donuts and coffee as perfect complements: He always eats one donut with a cup of coffee and will not eat a donut without coffee or drink coffee without a donut.
a) Derive and graph Hugo’s Engel curve for donuts. How much would Hugo’s weekly budget have to rise for him to be willing to buy one more donut per week?
b) By how much will a CPI over these two goods differ from the true cost-of-living index in this case? Explain