Maya divides her income between coffee andcroissanls (both of which arc normal goods). An earlyfrost in Brazil causes a large increase in the price ofcoffee in the U nitcd Stites.a. Show the eflcct ol the frost on Maya's budgetconstraint.b. Shm" the effect ol the frost on Maya's optinu,loonsumption bwl<ile assunling that the substitutioneflcct outweiglls the income effect for croiss:mls.c. Show the eflcct of the frost on Maya's optimalconsumption bw,dle assuming that the incomeeffect outweighs the substitution effect forcroissants

Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter20: Consumer Choice And Elasticity
Section: Chapter Questions
Problem 4CQ
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Maya divides her income between coffee and
croissanls (both of which arc normal goods). An early
frost in Brazil causes a large increase in the price of
coffee in the U nitcd Stites.
a. Show the eflcct ol the frost on Maya's budget
constraint.
b. Shm" the effect ol the frost on Maya's optinu,l
oonsumption bwl<ile assunling that the substitution
eflcct outweiglls the income effect for croiss:mls.
c. Show the eflcct of the frost on Maya's optimal
consumption bw,dle assuming that the income
effect outweighs the substitution effect for
croissants

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