Eleanor consumes only rice (R; initial price p_ro) and handkerchiefs (H; price ph), and has income Y. a. Manually (no software) draw a graph showing how she combines her budget constraint and indifference curves to choose the optimal R and H. A graph should always be labelled carefully: axes, curves, intercepts, relevant slopes b. Now the price of rice rises to p_r1. Manually draw a carefully labelled second graph showing the substitution, income and total effects, and also give a brief description in words of the substitution and income effects.
Eleanor consumes only rice (R; initial price p_ro) and handkerchiefs (H; price ph), and has income Y. a. Manually (no software) draw a graph showing how she combines her budget constraint and indifference curves to choose the optimal R and H. A graph should always be labelled carefully: axes, curves, intercepts, relevant slopes b. Now the price of rice rises to p_r1. Manually draw a carefully labelled second graph showing the substitution, income and total effects, and also give a brief description in words of the substitution and income effects.
Chapter21: Demand: Consumer Choic
Section: Chapter Questions
Problem 1E
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Transcribed Image Text:Eleanor consumes only rice (R; initial price p_ro) and handkerchiefs (H; price ph), and has income Y.
a. Manually (no software) draw a graph showing how she combines her budget constraint and
indifference curves to choose the optimal R and H. A graph should always be labelled carefully:
axes, curves, intercepts, relevant slopes
b. Now the price of rice rises to p_r1. Manually draw a carefully labelled second graph showing the
substitution, income and total effects, and also give a brief description in words of the substitution
and income effects.
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