Take the general case where your income is I, the price of coconuts is Pc and the price of pineapples is Pp.Now—let’s introduce a change. Assume that your income falls, but that the prices of the goods remains the same and answer the questions below:How does this change your budget constraint?Does the slope change? Why or why not? Compare the economic interpretation of the slope in this example with the starting one.Is the consumer able to afford more or less consumption bundles as a result of the decrease in your income?Then we would like you to investigate what happens to the budget constraint if the prices of coconuts and pineapples and your income increase by the same amount—with all other things remaining equal:How does this change your budget constraint?Does it shift or does it rotate?Is the consumer able to afford more or less consumption bundles as a result of the increase in the consumer’s income?In carrying out this activity, please make sure to explain your reasoning fully.

Budget line shows the combination of two goods that can be purchased by spending all amount with…

Answered: Take the general case where your income…

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

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Take the general case where your income is I, the price of coconuts is Pc and the price of pineapples is Pp.

Now—let’s introduce a change. Assume that your income falls, but that the prices of the goods remains the same and answer the questions below:

How does this change your budget constraint?
Does the slope change? Why or why not? Compare the economic interpretation of the slope in this example with the starting one.
Is the consumer able to afford more or less consumption bundles as a result of the decrease in your income?

Then we would like you to investigate what happens to the budget constraint if the prices of coconuts and pineapples and your income increase by the same amount—with all other things remaining equal:

How does this change your budget constraint?
Does it shift or does it rotate?
Is the consumer able to afford more or less consumption bundles as a result of the increase in the consumer’s income?

In carrying out this activity, please make sure to explain your reasoning fully.

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