Homework Help is Here – Start Your Trial Now!
Business
Economics
Marcus is a second year business student and has two options for meals: dining at university for £6 per meal, or eating a meal deal offered at a supermarket for £1.50 per meal. His weekly food budget is £60. a) Draw the budget constraint showing the trade-off between university meal and pre- packaged supermarket meal. Assume that Marcus spends equal amounts on the goods. Draw an indifference curve showing the optimum choice. Label the optimum as point A. Draw supermarket meal on the vertical axis. b) The price of the supermarket meal deal rises to £2. Assume that Marcus now spends only 30% of his income on university meals. Show the consequences of the changes using the graph in part (a). Label the new optimum as point (b). c) Comment on the result in part (b). What does this result say about the income and substitution effects? Explain. d) Calculate and compare the relative prices (i.e., opportunity cost) of supermarket meals and university meals before and after the price change. Explain how the price change affects the relative prices of the two meals.

Marcus is a second year business student and has two options for meals: dining at university for £6 per meal, or eating a meal deal offered at a supermarket for £1.50 per meal. His weekly food budget is £60. a) Draw the budget constraint showing the trade-off between university meal and pre- packaged supermarket meal. Assume that Marcus spends equal amounts on the goods. Draw an indifference curve showing the optimum choice. Label the optimum as point A. Draw supermarket meal on the vertical axis. b) The price of the supermarket meal deal rises to £2. Assume that Marcus now spends only 30% of his income on university meals. Show the consequences of the changes using the graph in part (a). Label the new optimum as point (b). c) Comment on the result in part (b). What does this result say about the income and substitution effects? Explain. d) Calculate and compare the relative prices (i.e., opportunity cost) of supermarket meals and university meals before and after the price change. Explain how the price change affects the relative prices of the two meals.

Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter6: Consumer Choice And Demand
Section6.A: Appendix: Indifference Curves And Utility Maximization
Problem 2AQ
See similar textbooks
icon
Related questions
Question

part C D

i need it in words 

not hanndwritten

Question 1 Marcus is a second year business student and has two options for meals: dining at university for £6 per meal, or eating a meal deal offered at a supermarket for £1.50 per meal. His weekly food budget is £60. a) Draw the budget constraint showing the trade-off between university meal and pre- packaged supermarket meal. Assume that Marcus spends equal amounts on the goods. Draw an indifference curve showing the optimum choice. Label the optimum as point A. Draw supermarket meal on the vertical axis. b) The price of the supermarket meal deal rises to £2. Assume that Marcus now spends only 30% of his income on university meals. Show the consequences of the changes using the graph in part (a). Label the new optimum as point (b). c) Comment on the result in part (b). What does this result say about the income and substitution effects? Explain. d) Calculate and compare the relative prices (i.e., opportunity cost) of supermarket meals and university meals before and after the price change. Explain how the price change affects the relative prices of the two meals.
Transcribed Image Text:Question 1 Marcus is a second year business student and has two options for meals: dining at university for £6 per meal, or eating a meal deal offered at a supermarket for £1.50 per meal. His weekly food budget is £60. a) Draw the budget constraint showing the trade-off between university meal and pre- packaged supermarket meal. Assume that Marcus spends equal amounts on the goods. Draw an indifference curve showing the optimum choice. Label the optimum as point A. Draw supermarket meal on the vertical axis. b) The price of the supermarket meal deal rises to £2. Assume that Marcus now spends only 30% of his income on university meals. Show the consequences of the changes using the graph in part (a). Label the new optimum as point (b). c) Comment on the result in part (b). What does this result say about the income and substitution effects? Explain. d) Calculate and compare the relative prices (i.e., opportunity cost) of supermarket meals and university meals before and after the price change. Explain how the price change affects the relative prices of the two meals.
Expert Solution
steps

Step by step

Solved in 4 steps with 1 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Interest Rate
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
Economics
ISBN:
9781285635101
Author:
MCEACHERN
Publisher:
Cengage
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Economics For Today
Economics For Today
Economics
ISBN:
9781337613040
Author:
Tucker
Publisher:
Cengage Learning
Micro Economics For Today
Micro Economics For Today
Economics
ISBN:
9781337613064
Author:
Tucker, Irvin B.
Publisher:
Cengage,
Microeconomic Theory
Microeconomic Theory
Economics
ISBN:
9781337517942
Author:
NICHOLSON
Publisher:
Cengage
Microeconomics
Microeconomics
Economics
ISBN:
9781337617406
Author:
Roger A. Arnold
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS