ii. What is the slope of the budget constraint? Are the following combinations of goods in the affordable set: (4E and 9O), (6E and 2O), (3E and 15O)? iii. Illustrate what happens to the budget line if the price of orange juice increases to $2. iv. Using the results in part (iii) explain the income and substitution effects?
ii. What is the slope of the budget constraint? Are the following combinations of goods in the affordable set: (4E and 9O), (6E and 2O), (3E and 15O)? iii. Illustrate what happens to the budget line if the price of orange juice increases to $2. iv. Using the results in part (iii) explain the income and substitution effects?
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
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a. Susan has the option to purchase eyeglasses, E, $3 each, and orange juice, O, $1 each. Her income is $24.
i. Draw the budget line, with eyeglasses on the vertical axis, and orange juice on the horizontal axis, and compute the values of the intercepts.
ii. What is the slope of the budget constraint? Are the following combinations of goods in the affordable set: (4E and 9O), (6E and 2O), (3E and 15O)?
iii. Illustrate what happens to the budget line if the price of orange juice increases to $2.
iv. Using the results in part (iii) explain the income and substitution effects?
Question iv to be answered
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