do parts a,b,c,d for me and explain too because I don't know. thanks **FIGURE 4.16: Income and Substitution Effects**This graph depicts the income and substitution effects on consumer choice between two goods, represented on the axes as y (vertical) and x (horizontal). - The curves labeled $b_A$, $b_B$, and $b_C$ are budget lines, showing different combinations of goods x and y that can be purchased with the available budget. The slope of each budget line is determined by the prices of the goods.- $I/p_y$ and $I_b/p_y$ denote the maximum amounts of good y that can be purchased when the entire budget is spent on y, with different income levels or price scenarios.- Indifference curves are depicted as the curved lines intersecting the budget lines. These curves represent different levels of utility or satisfaction, with points A, B, and C indicating different equilibrium points.- The points $x_A$, $x_B$, and $x_C$ on the x-axis and $y_A$, $y_B$, and $y_C$ on the y-axis show the quantities of goods x and y chosen at different budget constraints.- Movement from point A to B illustrates the substitution effect, where the consumer adjusts their consumption of goods in response to a change in relative prices, keeping utility constant.- Movement from point B to C reflects the income effect, where a change in purchasing power affects the consumption choices, as new budget lines allow for different combinations of goods x and y. **4.8. Income effect and substitution effect.**Consider Figure 4.16, depicting the preferences of a given consumer for goods $ x $ and $ y $. As a result of a change in the price of $ x $, the consumer's budget line shifts from $ b_a $ to $ b_c $.(a) What are the consumer’s optimal choices before and after the change in $ p_x $?(b) What are the substitution and income effects on the consumption of $ x $ of the change in $ p_x $?(c) For this consumer and for the given values of $ x $ and $ l $: is $ x $ an inferior or a normal good?(d) Explain, qualitatively and quantitatively, the meaning of the income effect.

A budget constraint refers to the constraint imposed on consumer choice by their limited budget.

14.8. Income effect and substitution effect. Consider Figure 4.16, depicting the preferences of a given consumer for goods x and y. As a result of a change in the price of x, the consumer's budget line shifts from b to bc. (a) What are the consumer's optimal choices before and after the change in px? (b) What are the substitution and income effects on the consumption of x of the change in px? (c) For this consumer and for the given values of x and 1: is x an inferior or a normal good? (d) Explain, qualitatively and quantitatively, the meaning of the income effect.

14.8. Income effect and substitution effect. Consider Figure 4.16, depicting the preferences of a given consumer for goods x and y. As a result of a change in the price of x, the consumer's budget line shifts from b to bc. (a) What are the consumer's optimal choices before and after the change in px? (b) What are the substitution and income effects on the consumption of x of the change in px? (c) For this consumer and for the given values of x and 1: is x an inferior or a normal good? (d) Explain, qualitatively and quantitatively, the meaning of the income effect.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

do parts a,b,c,d for me and explain too because I don't know. thanks

**FIGURE 4.16: Income and Substitution Effects**

This graph depicts the income and substitution effects on consumer choice between two goods, represented on the axes as y (vertical) and x (horizontal).

- The curves labeled $b_A$, $b_B$, and $b_C$ are budget lines, showing different combinations of goods x and y that can be purchased with the available budget. The slope of each budget line is determined by the prices of the goods.

- $I/p_y$ and $I_b/p_y$ denote the maximum amounts of good y that can be purchased when the entire budget is spent on y, with different income levels or price scenarios.

- Indifference curves are depicted as the curved lines intersecting the budget lines. These curves represent different levels of utility or satisfaction, with points A, B, and C indicating different equilibrium points.

- The points $x_A$, $x_B$, and $x_C$ on the x-axis and $y_A$, $y_B$, and $y_C$ on the y-axis show the quantities of goods x and y chosen at different budget constraints.

- Movement from point A to B illustrates the substitution effect, where the consumer adjusts their consumption of goods in response to a change in relative prices, keeping utility constant.

- Movement from point B to C reflects the income effect, where a change in purchasing power affects the consumption choices, as new budget lines allow for different combinations of goods x and y.

**4.8. Income effect and substitution effect.**

Consider Figure 4.16, depicting the preferences of a given consumer for goods $ x $ and $ y $. As a result of a change in the price of $ x $, the consumer's budget line shifts from $ b_a $ to $ b_c $.

(a) What are the consumer’s optimal choices before and after the change in $ p_x $?

(b) What are the substitution and income effects on the consumption of $ x $ of the change in $ p_x $?

(c) For this consumer and for the given values of $ x $ and $ l $: is $ x $ an inferior or a normal good?

(d) Explain, qualitatively and quantitatively, the meaning of the income effect.

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