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?
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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
- 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
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