Imagine there is an outbreak of 'mad sheep' disease, which wipes out a considerable portion of the sheep population in Scotland. This results in a shortage of Haggis and an increase in its price. a) Show the effect of this price increase on Angus' budget line and optimal choice, and explain the forces underpinning this outcome. (Hint: Consider substitution and income effects). b) Assuming that Haggis' price continues to increase over the subsequent months, derive the demand curve for Haggis. c) Discuss the income and substitution effects within the context of this price increase assuming that Haggis is an inferior good. 2

Imagine there is an outbreak of 'mad sheep' disease, which wipes out a considerable portion of the sheep population in Scotland. This results in a shortage of Haggis and an increase in its price. a) Show the effect of this price increase on Angus' budget line and optimal choice, and explain the forces underpinning this outcome. (Hint: Consider substitution and income effects). b) Assuming that Haggis' price continues to increase over the subsequent months, derive the demand curve for Haggis. c) Discuss the income and substitution effects within the context of this price increase assuming that Haggis is an inferior good. 2

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

learn-eu-central-1-prod-fleet01-xythos.content.blackboardcdn.com
Imagine there is an outbreak of 'mad sheep' disease, which wipes out a
considerable portion of the sheep population in Scotland. This results in a
shortage of Haggis and an increase in its price.
a) Show the effect of this price increase on Angus' budget line and
optimal choice, and explain the forces underpinning this outcome.
(Hint: Consider substitution and income effects).
b) Assuming that Haggis' price continues to increase over the
subsequent months, derive the demand curve for Haggis.
c) Discuss the income and substitution effects within the context of
this price increase assuming that Haggis is an inferior good.
2
26% 1

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