Please help me with iv & v Question 3Mrs. Griffiths earns $5000 a week and spends her entireincome on dresses and handbags, since these are theonly two items that provide her utility. Furthermore,Mrs. Griffiths insists that for every dress she buys, shemust also buy a handbag.i. What is the algebraic equation for Mrs. Griffithsbudget constraint if dresses cost $25 each andhandbags cost $14 each? How many of each goodwill she buy and represent this on a budget linewith handbags on the horizontal axis.ii. Draw an indifference curve showing the optimumchoice. Label the optimum as point A. What wouldbe the marginal rate of substitution at the point thatcorresponds to the optimal consumption choice?Interpret the marginal rate of substitution.iii. Suppose the price of a dresses increases to $200and income decreases to $4200. What is the newalgebraic equation for Mrs. Griffiths budgetconstraint? Show the impact of the new budget linerelative to the original budget line.iv. What would be the new marginal rate ofsubstitution that corresponds to the optimalconsumption choice? Interpret the marginal rate ofsubstitution.V. Assume for this question only that when the priceof dresses decreases, less of that good is demanded.Illustrate the income and substitution effect of thisprice decrease.

STEP 1: Question 3: In this problem, the consumer (Mrs Griffiths) consumes handbags and dresses in…

iv. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution. v. Assume for this question only that when the price of dresses decreases, less of that good is demanded. Illustrate the income and substitution effect of this price decrease.

iv. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution. v. Assume for this question only that when the price of dresses decreases, less of that good is demanded. Illustrate the income and substitution effect of this price decrease.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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