The diagram presented is an analysis of a consumer's choice between fossil fuels and renewable fuels, represented on a graph. The graph features two axes: the vertical axis labeled as "Fossil Fuels" and the horizontal axis labeled as "Renewable Fuels."Key elements of the diagram include:1. **Budget Lines**: - **BL1**: The initial budget line, indicating the consumer's original budget. - **BL2**: The final budget line, showing the change in the consumer's budget. - **BL3**: Another budget line intersecting the point E.2. **Indifference Curves**: - **IC1** and **IC2**: Curves that represent combinations of two goods (fossil fuels and renewable fuels) between which a consumer is indifferent.3. **Consumption Points**: - **A**, **B**, **C**, **D**, and **E**: Points showing various combinations of fossil fuels and renewable fuels that the consumer might choose under different circumstances.4. **Price Changes Question**: The diagram poses a question on which price change might have caused the movement from BL1 to BL2, affecting the consumer's consumption basket: - A. Increase in the price of renewable fuels - B. Decrease in the price of renewable fuels - C. Increase in the price of fossil fuels - D. Decrease in the price of fossil fuels - E. No change in either priceThe purpose of the diagram is to analyze how different price changes affect consumer choices and budget constraints, illustrating basic concepts of consumer theory in economics.

The budget constraint is the graphical representation of all the combinations of the two goods that the consumer can consume with the given income level and price in the economy. The two intercepts of the budget constraint will indicate the maximum of each commodity that the individual can consume when the other is not consumed at the given price and given income of the consumer. The initial budget constraint in this case is the BL1.When the price of a single commodity change, then the intercept of that specific commodity will change on the graph. The commodity which faces an increase in price will show an inward shift in the intercept and vice versa. The whole budget constraint will get shifted upward when income increases and downwards when income decreases. In this case, the Y-axis intercept remains the same for both BL1 and BL2 which means that the change is in the price of the X-axis commodity. Since the X-axis intercept shifted rightwards, it indicates that the price of the X-axis commodity has decreased. Thus, the correct answer is option ‘B’.

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In the diagram, assume the initial budget line is BL1 and the final budget constraint is BL2. Which of the following price changes caused the consumer shown in the diagram above to change her consumption basket? Fossil Fuels BL2 IC2 BL BL3 E Renewable Fuels X3 O A. An increase in the price of renewable fuels. OB. A decrease in the price of renewable fuels. OC. An increase in the price of fossil fuels. OD. A decrease in the price of fossil fuels. O E. No change in either price. 8.... ..

In the diagram, assume the initial budget line is BL1 and the final budget constraint is BL2. Which of the following price changes caused the consumer shown in the diagram above to change her consumption basket? Fossil Fuels BL2 IC2 BL BL3 E Renewable Fuels X3 O A. An increase in the price of renewable fuels. OB. A decrease in the price of renewable fuels. OC. An increase in the price of fossil fuels. OD. A decrease in the price of fossil fuels. O E. No change in either price. 8.... ..

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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