Sean and Yvette Durand live in Detroit and enjoy going out to fancy restaurants for dinner and to diners for breakfast. On the following diagram, thepurple curves ₁ and 12 represent two of their indifference curves for fancy dinners and diner breakfasts. They have $1,000 per month available tospend on eating out. The price of a diner breakfast is always $10. Each labeled point represents the tangency between a budget constraint and thecorresponding indifference curve.N▬▬▬▬▬▬▬▬▬DINER BREAKFASTS05 6MBC₁8FANCY DINNERSHBC2 The initial budget constraint (BC₁) shows the Durands' budget constraint when the price of a fancy dinner is $100. At this price, Sean and Yvettewould choose to consume five fancy dinners.Suppose that the price of a fancy dinner decreases to $50, shifting their budget constraint to BC₂, which represents a new relative price of five dinerbreakfasts per fancy dinner. (Hint: The blue line labeled H is parallel to BC₂ and tangent to I₁ at point M.)In order to remain as happy as they were before the price decrease-that is, to consume at some point on the same indifference curve as they wereon initially (1₁)-the Durands' income spent on fancy dinners and breakfast at diners would now only have to be $However, in reality, ratherthan maintaining their original level of utility, the Durands choose the optimal bundle along their new budget constraint. At this point, they areoff than before the price change in fancy dinners.On the following table, indicate which point movement represents the substitution effect and income effect for fancy dinners when the price decreasesfrom $100 to $50. Then indicate the consumption change that results from each effect.Consumption ChangeRepresented By... (Quantity of fancy dinners)Fancy DinnersSubstitution EffectIncome EffectIn this case, the price decrease of fancy dinners causes the Durands's real income toincome and the direction of the income effect, fancy dinners areBecause of the change to Sean and Yvette's realfor the Durands.

given that, the price of dinner and breakfast is always $10 Sean and Yvette Durand have $1000 have…

Sean and Yvette Durand live in Detroit and enjoy going out to fancy restaurants for dinner and to diners for breakfast. On the follow purple curves ₁ and 12 represent two of their indifference curves for fancy dinners and diner breakfasts. They have $1,000 per mo spend on eating out. The price of a diner breakfast is always $10. Each labeled point represents the tangency between a budget con corresponding indifference curve. N 70 CO

Sean and Yvette Durand live in Detroit and enjoy going out to fancy restaurants for dinner and to diners for breakfast. On the follow purple curves ₁ and 12 represent two of their indifference curves for fancy dinners and diner breakfasts. They have $1,000 per mo spend on eating out. The price of a diner breakfast is always $10. Each labeled point represents the tangency between a budget con corresponding indifference curve. N 70 CO

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.4P

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