Question 3 a. Andre has a salary of $1000. He spends his entire budget on shoes and beers. The cost for a pair of shoes is $15 and the cost for can of beer is $25. į. Construct Andre's budget constraint (place) beers on the y-axis. i. Suppose Andre's salary rises by 25%. Also suppose that the price of shoes and beers each rise by 40%. Construct Andre's new budget constraint. What is the difference between the new and old budget constraints? ii. Suppose that the price of beers fell from $25 per beer to $15. Construct Andre's new budget constraint. What is the difference between the new and old budget constraints. b. Explain the relationship between the budget constraint and indifference curve at consumer optimum.

Question 3 a. Andre has a salary of $1000. He spends his entire budget on shoes and beers. The cost for a pair of shoes is $15 and the cost for can of beer is $25. į. Construct Andre's budget constraint (place) beers on the y-axis. i. Suppose Andre's salary rises by 25%. Also suppose that the price of shoes and beers each rise by 40%. Construct Andre's new budget constraint. What is the difference between the new and old budget constraints? ii. Suppose that the price of beers fell from $25 per beer to $15. Construct Andre's new budget constraint. What is the difference between the new and old budget constraints. b. Explain the relationship between the budget constraint and indifference curve at consumer optimum.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 3SQP

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