Frank Furter loves his hot dogs served in the slit of a partially sliced bun. Suppose he gets no more satisfaction from eating two buns with one hot dog than from eating one of each and that similarly two hot dogs with only one bun afford no more satisfaction than one of each, and so forth. Assume furter... ahem... further that Frank believes that two hot dogs each served in a bun are better than one hot dog in a bun, that three hot dogs each in a bun are better than two, and so forth. J a. Buns (5) Draw two of Frank's indifference curves. Please label your axes. b. Suppose that the price of hot dogs is $2 apiece while a sliced bun is $0.50 apiece. If Frank has $40 to spend this month on hot dogs and hot dog buns, how many of each will he buy? Let me be Frank: Please remember to show your work. B- 40 40 3 Hot dog (x) 2H+0.50B40 H=B 2B+0SB= 40 (ii) DECREASE 2-$3=40 als 2.5 B= 16 - They will buy 16 of eceh Hot Dogs (x) C. If the price of a hot dog falls to $1.50 (but the price of a hot dog bun remains at $0.50), will Frank's purchases of hot dogs (and hot dog buns) change this month? Simply circle one of the three following responses: (i) INCREASE 16 Buns 16 Hot dogs (iii) REMAIN THE SAME d. What is the sign and magnitude of the "substitution effect" of the price change described in part (c)?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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I need help on part d

Frank Furter loves his hot dogs served in the slit of a partially sliced bun. Suppose
he gets no more satisfaction from eating two buns with one hot dog than from eating one of each
and that similarly two hot dogs with only one bun afford no more satisfaction than one of each, and
so forth. Assume furter ... ahem... further that Frank believes that two hot dogs each served in a
bun are better than one hot dog in a bun, that three hot dogs each in a bun are better than two, and
so forth.
Draw two of Frank's indifference curves. Please label your axes.
a.
Hot
b. Suppose that the price of hot dogs is $2 apiece while a sliced bun is $0.50 apiece. If Frank
has $40 to spend this month on hot dogs and hot dog buns, how many of each will he buy?
Let me be Frank: Please remember to show your work.
Buns (9)
(6) Sung
ISH+0SB= 40
ISB+0SB = 40
2B=40
B= 20
2H+0.50B = 40
H=B
2B+0SB= 40
(ii) DECREASE
2-$3=40
als 2.5
B = 16
- They will buy
16 of eceh
Hot Dogs (x)
C.
If the price of a hot dog falls to $1.50 (but the price of a hot dog bun remains at $0.50), will
Frank's purchases of hot dogs (and hot dog buns) change this month? Simply circle one of
the three following responses:
(i) INCREASE
16 Buns
16 Hot dogs
(iii) REMAIN THE SAME
d. What is the sign and magnitude of the "substitution effect" of the price change described in
part (c)?

Expert Solution

Introduction

Complementary goods are those that may or must be used in relation with one another to satisfy a certain want. A good cannot be consumed in alone when there is a complimentary relationship between two goods. The demand for its complementary goods will shift in the opposite direction if the price of one good, often a significant good in a complimentary relationship such as the price of a hot dogs and buns, changes. In the case of complementary goods, the price consumption curve is upward sloping, demonstrating an inverse relationship between changes in one good's price and the corresponding shifts in the quantity demanded of its complimentary goods. The price effect in the context of complementary goods can be further explained with the help of upward-sloping price consumption curve.

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