I added the blue line from point A to B, and drew the point at point B. Is that right? The graph shows Esther's best affordable point at A.The price of seeing a movie falls and Esther's new best affordable point is C.Draw a budget line that isolates the substitution effect. Label it B3.Draw a point to indicate where Esther consumes if she faces the budget line you've drawn. Label it B.For Esther, the substitution effect is the movement fromO A. point C to point B; point B to point AB.point A to point C; point C to point BO C. point B to point C; point C to point AOD. point A to point B; point B to point Cand the income effect is the movement from6-42-Magazines (per month)1.507AB₁CB3BMovies (per month)14¹2B₂8

SE and IE are two components of the effect of the price change. SE reflects the change in quantity…

Answered: I added the blue line from point A to…

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I added the blue line from point A to B, and drew the point at point B. Is that right?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

100%

I added the blue line from point A to B, and drew the point at point B. Is that right?

The graph shows Esther's best affordable point at A.
The price of seeing a movie falls and Esther's new best affordable point is C.
Draw a budget line that isolates the substitution effect. Label it B3.
Draw a point to indicate where Esther consumes if she faces the budget line you've drawn. Label it B.
For Esther, the substitution effect is the movement from
O A. point C to point B; point B to point A
B.
point A to point C; point C to point B
O C. point B to point C; point C to point A
OD. point A to point B; point B to point C
and the income effect is the movement from
6-
4
2-
Magazines (per month)
1.5
07
A
B₁
C
B3
B
Movies (per month)
14
¹2
B₂
8

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Step 1: SE and IE:

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Step 2: BL to isolate the SE:

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Step 3: Income effect

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