2. For the Income-Consumption Line & Engel Curve: (kindly place Good A on the X-axis & Good B on the Y-axis) If the consumer's tastes are given by the Indifference curves schedule and Pa = P1.00, Pb = P1.00 and original budget = P10.00, what happens if budget decreases to P6.00 and then increases to P14.00, assuming that tastes and prices of the two goods are constant. Create the new budget schedules. Plot the 2 new budget lines as well as the original with the 3 indifference curves together and determine the tangency points or LCPC and create the Income- Consumption Line.

2. For the Income-Consumption Line & Engel Curve: (kindly place Good A on the X-axis & Good B on the Y-axis) If the consumer's tastes are given by the Indifference curves schedule and Pa = P1.00, Pb = P1.00 and original budget = P10.00, what happens if budget decreases to P6.00 and then increases to P14.00, assuming that tastes and prices of the two goods are constant. Create the new budget schedules. Plot the 2 new budget lines as well as the original with the 3 indifference curves together and determine the tangency points or LCPC and create the Income- Consumption Line.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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ONly parts D-G
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A consumer has a budget of £12 to split between two goods: good 1 has a price of 2, good 2 has a price of 3. Write the consumer’s budget constraint algebraically. Convert this budget constraint into the formula for the budget line. Show this line on a suitably labelled graph. The consumer’s budget increases to £24. Show the effect of this change graphically. A consumer dislikes good 1, and dislikes good 2. Show these preferences on a suitably labelled graph with an indifference curve. Label the graph: which areas would be preferred to those on the line?
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