A consumer's indifference curves are shown below. Only two curves are drawn. Other curves at different utility levels could be drawn similarly. y 4 'y/x = 2/1 y/x = 1/2 2 U2 1 0 1 2 4 U₁ X (a) This consumer has $4 to spend on good x and good y. The price of x is $2. The price of y is $1. Draw the budget line and indifference curves in your submitted worksheet and show the optimal choice for the consumer. (b) Now, price of x falls to $0.8. Draw the new budget line and show the optimal choice for the consumer. (c) Calculate numerically the new consumption quantities for x and y. Show your procedure of deriving the final answers. (d) Calculate numerically the amount of quantity change in x due to (i) substitution effect and (ii) income effect.

A consumer's indifference curves are shown below. Only two curves are drawn. Other curves at different utility levels could be drawn similarly. y 4 'y/x = 2/1 y/x = 1/2 2 U2 1 0 1 2 4 U₁ X (a) This consumer has $4 to spend on good x and good y. The price of x is $2. The price of y is $1. Draw the budget line and indifference curves in your submitted worksheet and show the optimal choice for the consumer. (b) Now, price of x falls to $0.8. Draw the new budget line and show the optimal choice for the consumer. (c) Calculate numerically the new consumption quantities for x and y. Show your procedure of deriving the final answers. (d) Calculate numerically the amount of quantity change in x due to (i) substitution effect and (ii) income effect.

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter6: Consumer Choice And Demand

Section6.A: Appendix: Indifference Curves And Utility Maximization

Problem 2AQ

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