price or cheese is is treated as a composite good representing dollars spent on other consumption. the following graph, use the blue line (circle symbol) to graph Rajiv's budget constraint (BC), Then, place the blac ph to indicate the best bundle in this case. te: Dashed drop lines will automatically extend to both axes. 100 BC
price or cheese is is treated as a composite good representing dollars spent on other consumption. the following graph, use the blue line (circle symbol) to graph Rajiv's budget constraint (BC), Then, place the blac ph to indicate the best bundle in this case. te: Dashed drop lines will automatically extend to both axes. 100 BC
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.2P
Related questions
Question
Transcribed Image Text:Suppose that you are trying to determine whether or not your friend Rajiv views a pound of cheese as a necessity, a luxury, or in between a necessity
and a luxury. Rajiv has a weekly income of s50 to spend on either cheese or other consumption. The price of cheese is $10 per pound, and the vertical
axis is treated as a composite good representing dollars spent on other consumption.
On the following graph, use the blue line (circle symbol) to graph Rajiy's budget constraint (BC). Then, place the black point (plus symbol) on the
graph to indicate the best bundle in this case.
Note: Dashed drop lines will automatically extend to both axes.
100
90
вс,
70
Initial Best Bundle
00
50
40
BC,
30
20
New Best Bundie
10
2.
6.
10
CHEESE (Pounds per week)
Now, suppose that Rajiv's weekly income increases to $100.
Use the green line (triangle symbol) to graph the new budget constraint (BCa). Then, place the grey point (star symbol) on the graph to indicate the
new best bundle.
According to the previous graph, a pound of cheese is
True or False: Rajiv's preferences exhibit homothetic tastes.
True
False
OTHER CONSUMPTION (Dollats per week)
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