Tim and Alyssa Espinosa live in Dallas 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 $800 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.DINER BREAKFASTS4840260II2BC₁5Slope: 4X-Intercept: 20Y-Intercept: 80IH10FANCY DINNERS The initial budget constraint (BC₁) shows the Espinosas' budget constraint when the price of a fancy dinner is $160. At this price, Tim and Alyssawould choose to consume two fancy dinners.Suppose that the price of a fancy dinner decreases to $40, shifting their budget constraint to BC₂, which represents a new relative price of four dinerbreakfasts per fancy dinner. (Hint: The blue line labeled H is parallel to BC₂ and tangent to ₁ at point Y.)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 were. However, in reality,on initially (7₁)-the Espinosas' income spent on fancy dinners and breakfast at diners would now only have to be srather than maintaining their original level of utility, the Espinosas 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 $160 to $40. Then indicate the consumption change that results from each effect.Fancy DinnersSubstitution EffectIncome EffectConsumption ChangeRepresented By... (Quantity of fancy dinners)In this case, the price decrease of fancy dinners causes the Espinosas's real income toincome and the direction of the income effect, fancy dinners are. Because of the change to Tim and Alyssa's realfor the Espinosas.

The purpose of this question is to show the indifference curve depicts the combination of two goods…

Tim and Alyssa Espinosa live in Dallas and enjoy going out to fancy restaurants for dinner and to diners for breakfast. On the following diagram, the purple curves ₁ and 12 represent two of their indifference curves' for fancy dinners and diner breakfasts. They have $800 per month available to spend on eating out. The price of a diner breakfast is always $10. Each labeled point represents the tangency between a budget constraint and the corresponding indifference curve.

Tim and Alyssa Espinosa live in Dallas and enjoy going out to fancy restaurants for dinner and to diners for breakfast. On the following diagram, the purple curves ₁ and 12 represent two of their indifference curves' for fancy dinners and diner breakfasts. They have $800 per month available to spend on eating out. The price of a diner breakfast is always $10. Each labeled point represents the tangency between a budget constraint and the corresponding indifference curve.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 8SQP

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