Reference no: EM133126960
Assume that the initial price level for "food" (e.g., rice, beans, flour, eggs, sugar) is 103 and the initial price level for "other stuff" (e.g., yucca, nuts, sugarcane) consumed by the typical rural farming family is also 103. The Mburu family of Tanzania are rural farmers who grow "food" to sell in local and regional markets, but they also consume a portion (i.e., 20%) of "food" that they grow. The Mburu family are one of the largest farming families in Tanzania, with about 100 acres (or hectares) of land and they have greater access to regional markets in and around Tanzania. Their family income in 2020 was $50,000.
Due to unforeseen and surprising circumstances, the price level of "food" doubles while the price level of "other stuff" remains constant.
(a) Explain the income and substitution effects on the Mburu family and other farmers in Tanzania, given the rise in the price of "food".
(b) Explain how the rise in "food" prices affects the Mburu family's profit from "food" production.
(c) Is the Mburu family better off (or worse off) as producers and consumers due to the rise in "food" prices? Explain.
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: Assume that the initial price level for "food" (e.g., rice, beans, flour, eggs, sugar) is 103 and the initial price level for "other stuff" (e.g., yucca, nuts,
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