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.

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter7: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 4CQ

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