Please show your answer step by step with reasons. (i) A consumer has income of £3,000. Apple juice is priced at £3 a bottle and cheese is priced at £6 a kilo. Draw the budget constraint for a consumer with standard preferences. What is the slope of this budget constraint? (ii) Show a consumer’s budget constraint and indifference curves for apple juice and cheese. Show the optimal consumption choice. If the price of juice is £3 a bottle and the price of cheese is £6 a kilo, what is the marginal rate of substitution at this optimum? (iii) The price of cheese rises from £6 to £10 a kilo, while the price of juice remains at £3 a bottle. For a consumer with a constant income of £3,000, show what happens to consumption of juice and cheese. Decompose the change
Please show your answer step by step with reasons.
(i) A consumer has income of £3,000. Apple juice is priced at £3 a bottle and cheese is priced at £6 a kilo. Draw the budget constraint for a consumer with standard preferences. What is the slope of this budget constraint?
(ii) Show a consumer’s budget constraint and indifference
(iii) The price of cheese rises from £6 to £10 a kilo, while the price of juice remains at £3 a bottle. For a
consumer with a constant income of £3,000, show what happens to consumption of juice and cheese.
Decompose the change into income and substitution effects.
Step by step
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