Change in price on consumer optimal choice

Assignment Help Business Economics

Reference no: EM131174616

Make a diagram illustrating the effect of a change in price on a consumer’s optimal choice given the information below. Assume each consumer has well behaved preferences, that no consumer has kinky preferences, and that the optimal consumer choice will always be an interior solution. Be sure to clearly depict both income and substitution effects in every given case.

A. The price of good one decreases. Assume good one is inferior.

B. The price of good one decreases. Assume good one is a giffen good.

Please provide a diagram and show the income effect and substitution effect within the diagram.

Reference no: EM131174616

Questions Cloud

Explain will the buyer succeed in recovering the excess : A shipbuilder had contracted to build a tanker for North Ocean Tankers. The contract was in US dollars and didn't contain any provisions for currency fluctuations. Will the buyer succeed in recovering the excess

What quantity of output should the firm produce in long run : A firm has a cost function of TC (q )=80+4q+2q2 and a marginal cost function of MC (q)=4+4q. At the given market price of $16, the firm is producing 3 units of output. What quantity of output should the firm produce in the long run?

Briefly comment on impact on the economy of this effort : Many people have argued about the wisdom of the "TARP" program that was implemented late in the Presidential term of President George W. Bush with the full approval of the Congress. Briefly comment on the impact on the economy of this effort and expl..

Trends suggest an erosion of state governing capacity : Identify what kinds of recent trends suggest an erosion of state governing capacity. Share one or more example. What are your thoughts on these changes? Are they for the better or the worse? Support your comments with assigned readings or other theor..

Change in price on consumer optimal choice : Make a diagram illustrating the effect of a change in price on a consumer’s optimal choice given the information below. Assume each consumer has well behaved preferences, that no consumer has kinky preferences, and that the optimal consumer choice wi..

Vertical portion of the aggregate supply curve : If the economy is in the vertical portion of the aggregate supply curve, according to monetarists, an increase in the money supply in the long run will

The effectiveness of monetary policy is influenced by : The effectiveness of monetary policy is influenced by

What is the basic principle behind supply-side economics : What is the basic principle behind supply- side economics? After supply-side policies were implemented in 1981, the economy pulled out of the 1980 recession and entered an expansionary period. How would a supply-side economist explain the success ..

What will happen to equilibrium price-quantity in markets : An unseasonably warm March is followed by a unseasonably cold April. This leads to a 30% reduction in the yield of apples. As a result, the price of peaches increases. Illustrate this situation with supply and demand curves (draw diagrams for both ma..

User Account

All Pages