2. Identifying luxuries versus necessities Suppose that you are trying to determine whether or not your friend Valerie views a bottle of wine as a necessity, a luxury, or in between a necessity and a luxury. Valerie has a weekly income of $60 to spend on either wine or other consumption. The price of wine is $15 per bottle, and the vertical axis is treated as a composite good representing dollars spent on other consumption. On the following graph, use the blue line (circle symbol) to graph Valerie's budget constraint (BC1). Then, place the black point (plus symbol) on the graph to indicate the best bundle in this case. Note: Dashed drop lines will automatically extend to both axes. OTHER CONSUMPTION (Dollars per week) 100 90 80 70 60 50 40 30 20 10 0 0 + 1 2 3 4 5 6 7 WINE (Bottles per week) 8 IC₂ ・IC₁ 9 H 10 BC₁ + Initial Best Bundle BC₂ New Best Bundle ?

2. Identifying luxuries versus necessities Suppose that you are trying to determine whether or not your friend Valerie views a bottle of wine as a necessity, a luxury, or in between a necessity and a luxury. Valerie has a weekly income of $60 to spend on either wine or other consumption. The price of wine is $15 per bottle, and the vertical axis is treated as a composite good representing dollars spent on other consumption. On the following graph, use the blue line (circle symbol) to graph Valerie's budget constraint (BC1). Then, place the black point (plus symbol) on the graph to indicate the best bundle in this case. Note: Dashed drop lines will automatically extend to both axes. OTHER CONSUMPTION (Dollars per week) 100 90 80 70 60 50 40 30 20 10 0 0 + 1 2 3 4 5 6 7 WINE (Bottles per week) 8 IC₂ ・IC₁ 9 H 10 BC₁ + Initial Best Bundle BC₂ New Best Bundle ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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