On the graph below, the consumer begins at L1. The relative prices change to L2. Complete the table and the sentence below. (Hint: The dashed line is a reference line to show us the income effect. Point B shows only the income effect. The change from A to B is the income effect. The change from B to C is the substitution effect.) Porcupines consumed at 'A'   Grenades consumed at 'A'   Porcupines consumed at 'C'   Grenades consumed at 'C'   Will consumption of Grenades increase or decrease due to the income effect?   Quantity change in Grenades due to income effect    Will consumption of Grenades increase or decrease due to the substitution effect?   Quantity change in Grenades due to substitution effect   Will consumption of Porcupines increase or decrease due to the income effect?   Quantity change in Porcupines due to income effect   Will consumption of Porcupines increase or decrease due to the substitution effect?   Quantity change in Porcupines due to substitution effect   * Indicate both the quantity of the change as well as whether it's an increase or decrease.   A2. Why do we expect that indifference curves will never cross?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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  1. On the graph below, the consumer begins at L1. The relative prices change to L2. Complete the table and the sentence below. (Hint: The dashed line is a reference line to show us the income effect. Point B shows only the income effect. The change from A to B is the income effect. The change from B to C is the substitution effect.)
Porcupines consumed at 'A'  
Grenades consumed at 'A'  
Porcupines consumed at 'C'  
Grenades consumed at 'C'  
Will consumption of Grenades increase or decrease due to the income effect?  
Quantity change in Grenades due to income effect   
Will consumption of Grenades increase or decrease due to the substitution effect?  
Quantity change in Grenades due to substitution effect  
Will consumption of Porcupines increase or decrease due to the income effect?  
Quantity change in Porcupines due to income effect  
Will consumption of Porcupines increase or decrease due to the substitution effect?  
Quantity change in Porcupines due to substitution effect  

* Indicate both the quantity of the change as well as whether it's an increase or decrease.

 

A2. Why do we expect that indifference curves will never cross?

Grenades
45
35
25
C
A
15
5
L1
L2
10
30
50 70
90
110
Porcupines
Transcribed Image Text:Grenades 45 35 25 C A 15 5 L1 L2 10 30 50 70 90 110 Porcupines
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