Riley has $6 to spend on ramen and apps for their phone. The price of a bowl of ramen is $2, and the price of an app is $1. Riley's preferences for ramen and apps are represented by the indifference curves on the next page. a. Determine which line (L1, L2, L3, L4, or L5) represents Riley's budget constraint. b. Find the utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of ramen Riley will buy. Suppose now that the price of a bowl of ramen is discounted for students to $1 per bowl. c. Determine which line (L1, L2, L3, L4, or L5) represents Riley's new budget constraint. d. Find the new utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of Ramen Riley will now buy. e. Find the size and direction (positive or negative) of the substitution effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. f. Find the size and direction (positive or negative) of the income effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. g. Based on your answers to parts e and f, is ramen a normal or an inferior good for Riley?
Riley has $6 to spend on ramen and apps for their phone. The price of a bowl of ramen is $2, and the price of an app is $1. Riley's preferences for ramen and apps are represented by the indifference curves on the next page. a. Determine which line (L1, L2, L3, L4, or L5) represents Riley's budget constraint. b. Find the utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of ramen Riley will buy. Suppose now that the price of a bowl of ramen is discounted for students to $1 per bowl. c. Determine which line (L1, L2, L3, L4, or L5) represents Riley's new budget constraint. d. Find the new utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of Ramen Riley will now buy. e. Find the size and direction (positive or negative) of the substitution effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. f. Find the size and direction (positive or negative) of the income effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. g. Based on your answers to parts e and f, is ramen a normal or an inferior good for Riley?
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
Related questions
Concept explainers
Marginal Rate of Technical Substitution
MRTS reaches a manufacturer when a part of the product is lowered to sustain the manufacturing level when the other part is extended. It is the level of the quantity that is lowered when one extra volume is used, and the output is unchanged.
Preferences and Utility Analysis
Before understanding what is preference and utility analysis, it is very important to understand the terms preference and utility separately.
Question
100%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
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
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning