Chocolate Syrup (cups) 10 5 0 5 Mustard (gallons) 4) Robert's preferences are shown in the diagram above 10 Suppose that Robert has $96. The price of Mustard is $24/gallon, and the price of Syrup is $12/cup. Suddenly the price of Mustard falls to $12/gallon. a) Show the Income and Substitution effects of this change on the diagram. b) Is Robert better off? c) At the new prices, how much money does Robert need to be as happy as he was initially? d) What is the most that Robert is willing to pay to induce the Mustard seller to reduce the price from $24/gallon to $12/gallon?

Chocolate Syrup (cups) 10 5 0 5 Mustard (gallons) 4) Robert's preferences are shown in the diagram above 10 Suppose that Robert has $96. The price of Mustard is $24/gallon, and the price of Syrup is $12/cup. Suddenly the price of Mustard falls to $12/gallon. a) Show the Income and Substitution effects of this change on the diagram. b) Is Robert better off? c) At the new prices, how much money does Robert need to be as happy as he was initially? d) What is the most that Robert is willing to pay to induce the Mustard seller to reduce the price from $24/gallon to $12/gallon?

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 5SQP

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