Draw a budget constraint and indifference curve for Pepsi and Pizza on the same graph. Show the optimum point and explain what it represents. Show what happens to the budget constraint and the optimum when price of pizza rises? Decompose the change in part 2 into income and substitution effect. Derive the demand curve from this price change.
Draw a budget constraint and indifference curve for Pepsi and Pizza on the same graph. Show the optimum point and explain what it represents. Show what happens to the budget constraint and the optimum when price of pizza rises? Decompose the change in part 2 into income and substitution effect. Derive the demand curve from this price change.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 2CQQ
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Question
- Draw a budget constraint and indifference curve for Pepsi and Pizza on the same graph. Show the optimum point and explain what it represents.
- Show what happens to the budget constraint and the optimum when
price of pizza rises?
- Decompose the change in part 2 into income and substitution effect.
- Derive the demand curve from this price change.
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