2. A consumer buys food and drink. As shown on the diagram below, the consumer experiences an increase in the price of food, pivoting his budget constraint from BC to BC₁. The consumer's income is $200, and the optimal bundle on each budget line is shown. Drink BC1 BCO Food 20 40 45 80 200 a What is the price of food on BC0? What about on BC₁? b. When the price of food rises, the consumer's purchases of food decline by units. C. How much of the decline in (b) is due to the substitution effect? How much is due to the income effect? d. Use these data to sketch the Marshallian demand curve for food. e. Use these data to sketch the Hicksian demand curve for food.
2. A consumer buys food and drink. As shown on the diagram below, the consumer experiences an increase in the price of food, pivoting his budget constraint from BC to BC₁. The consumer's income is $200, and the optimal bundle on each budget line is shown. Drink BC1 BCO Food 20 40 45 80 200 a What is the price of food on BC0? What about on BC₁? b. When the price of food rises, the consumer's purchases of food decline by units. C. How much of the decline in (b) is due to the substitution effect? How much is due to the income effect? d. Use these data to sketch the Marshallian demand curve for food. e. Use these data to sketch the Hicksian demand curve for food.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter3: Supply And Demand: Theory
Section3.1: What Is Demand
Problem 1ST
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Transcribed Image Text:2.
A consumer buys food and drink. As shown on the diagram below, the consumer experiences an increase in the
price of food, pivoting his budget constraint from BC to BC₁. The consumer's income is $200, and the optimal
bundle on each budget line is shown.
Drink
BC1
BCO
Food
20
40 45
80
200
a What is the price of food on BC0? What about on BC₁?
b.
When the price of food rises, the consumer's purchases of food decline by
units.
C.
How much of the decline in (b) is due to the substitution effect? How much is due to the income effect?
d.
Use these data to sketch the Marshallian demand curve for food.
e.
Use these data to sketch the Hicksian demand curve for food.
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