he indifference map below shows Tarzan’s preferences over “weapons of mass destruction” and a composite good for all other things that costs $1. Tarzan’s income is $24. The graph shows an increase in the price of weapons from $1 to $2, moving Tarzan from budget constraint B0 to budget constraint B1. The hypothetical budget constraint is B’. His optimal bundle on each budget constraint is given. ( Please look at photo, the graph, kindly ans a-e) a. Are weapons of mass destruction a normal good or an inferior good for Tarzan? Be clear about which budget constraints you compared. b. Are weapons of mass destruction a Giffen good for Tarzan? Be clear about which budget constraints you compared. c. What is the income effect resulting from the price increase? Be careful about sign. d. What is the substitution effect resulting from the price increase? Be careful about sign. e. Sketch Tarzan’s Marshallian demand curve for weapons of mass destruction. Label clearly the points that you used in deriving your graph and label this curve Dm.
Decomposing a
The indifference map below shows Tarzan’s preferences over “weapons of mass destruction”
and a composite good for all other things that costs $1. Tarzan’s income is $24. The graph shows an increase in the price of weapons from $1 to $2, moving Tarzan from budget constraint B0 to budget constraint B1. The hypothetical budget constraint is B’. His optimal bundle on each budget constraint is given. ( Please look at photo, the graph, kindly ans a-e)
a. Are weapons of mass destruction a normal good or an inferior good for Tarzan? Be clear about which budget constraints you compared.
b. Are weapons of mass destruction a Giffen good for Tarzan? Be clear about which budget constraints you compared.
c. What is the income effect resulting from the price increase? Be careful about sign.
d. What is the substitution effect resulting from the price increase? Be careful about sign.
e. Sketch Tarzan’s Marshallian demand curve for weapons of mass destruction. Label clearly the points that you used in deriving your graph and label this curve Dm.
Step by step
Solved in 3 steps with 1 images
