Example on indifference curves and budget lines, Microeconomics

Assignment Help:

Since 1990, real income has increased rapidly, yet the average number of children per family has decline." Three possible explanations for this process are given below. Explain each of them using indifference curves and budget lines showing the tradeoffs between the composite commodity (CC) and number of children. Also give a verbal explanation.

 a. Children are an inferior good; parents demand, as income rises fewer children.

ANSWER:  As given below, as income rises, the budget line gear up and the new optimal choice happens at the point of tangency between the highest indifference curve and new budget line. Since children are an inferior good, the quantity of children after the income increase will exceed the quantity of children before the income increase.

b. Children are basic goods but they have become more expensive to raise.

ANSWER: As explained below, an increase in the cost of raising children can pivot the budget line so that fewer children will be afforded if the entire income is used on children. The substitution effect may cause fewer children to be raised. The income effect can work in the same direction - a lower real income because of the increase of the cost of raising children will cause fewer children to be raised.

784_Example on indifference curves and budget lines.png

c. Children are not more expensive; the tastes of parents have modified, such that children are less preferred now than they were in 1990 ".

ANSWER: As explained below, a modification in tastes will modify the position and shape of the indifference curves - indifference curve will become flatter for each level of C. Thus, for a given budget line, fewer children will be raised.

1527_Example on indifference curves and budget lines1.png


Related Discussions:- Example on indifference curves and budget lines

Boltzmann distribution, Boltzmann Distribution: In most cases of interest o...

Boltzmann Distribution: In most cases of interest of chemistry the particles adopt the Boltzmann distribution. Qualitative considerations: the general expression for W given by eq

Consumer choice, Consumer Choice   * Consumers choose a combination of g...

Consumer Choice   * Consumers choose a combination of goods which will maximize satisfaction they can attain, given the some degree of budget available to them. * The maximiz

World trade organisation agreements, WTO Agreements: The WTO administe...

WTO Agreements: The WTO administers 29 agreements; these cover different areas like trade in goods and services, investment measures, intellectual property rights, etc. Some o

Double jeopardy, Double Jeopardy A condition where an entrepreneur's m...

Double Jeopardy A condition where an entrepreneur's main source of income and net worth depend on the entrepreneur's organization.

Diseconomies of scale, identify and discuss four major managerial factors t...

identify and discuss four major managerial factors that lead to dis-economies of scale

Wage Discrimination, Suppose that two wage regressions are estimated for na...

Suppose that two wage regressions are estimated for native and white workers: Wn = 5.0 + 0.10S Ww = 6.0 + 0.14S Pick a reasonable average level of schooling for white and Native wo

The supply function, price quantity 10 60 20 70 30 90 40 110 50 130 der...

price quantity 10 60 20 70 30 90 40 110 50 130 derived a supply function for the relation between price and quantity

Mr and ar, A monopolist''s demand curve is P=100-2q. find his MR function. ...

A monopolist''s demand curve is P=100-2q. find his MR function. at what price is MR zero

What is the theory of Second Best?, What is the theory of Second Best? Prov...

What is the theory of Second Best? Prove the theorem with the help of a diagram.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd