Question #7: There are two goods in the world: eggplants and canned peas. Canned peas are an inferior good while eggplants are a normal good. Annie's income is $20 and peas cost $1 per can while eggplants cost $4 each. Draw a graph that shows the combinations of the two goods Annie can consume (put peas on the horizontal axis and label the axes and the intercepts). Given this constraint, Annie chooses to consume 8 cans of peas. Label her preferred bundle on the graph and be clear to show that this is optimal bundle. The price of eggplants falls to $2. Explain the effect on Annie's consumption of eggplants and peas. Draw a new graph with both budget constraints, the old and new indifference curves indicating her preferred bundles and explain any income and substitution effects.
Question #7: There are two goods in the world: eggplants and canned peas. Canned peas are an inferior good while eggplants are a normal good. Annie's income is $20 and peas cost $1 per can while eggplants cost $4 each. Draw a graph that shows the combinations of the two goods Annie can consume (put peas on the horizontal axis and label the axes and the intercepts). Given this constraint, Annie chooses to consume 8 cans of peas. Label her preferred bundle on the graph and be clear to show that this is optimal bundle. The price of eggplants falls to $2. Explain the effect on Annie's consumption of eggplants and peas. Draw a new graph with both budget constraints, the old and new indifference curves indicating her preferred bundles and explain any income and substitution effects.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Question #7: There are two goods in the world: eggplants and canned peas. Canned peas are an
inferior good while eggplants are a normal good. Annie's income is $20 and peas cost $1 per can
while eggplants cost $4 each.
Draw a graph that shows the combinations of the two goods Annie can
consume (put peas on the horizontal axis and label the axes and the intercepts). Given this
constraint, Annie chooses to consume 8 cans of peas. Label her preferred bundle on the
graph and be clear to show that this is optimal bundle.
The price of eggplants falls to $2. Explain the effect on Annie's consumption
of eggplants and peas. Draw a new graph with both budget constraints, the old and new
indifference curves indicating her preferred bundles and explain any income and
substitution effects.
5](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4eb15e13-5175-43df-8a0f-502cec4c5409%2F12c63b8c-aa81-438d-898d-cbbd6ae67437%2Fshk6hfi_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question #7: There are two goods in the world: eggplants and canned peas. Canned peas are an
inferior good while eggplants are a normal good. Annie's income is $20 and peas cost $1 per can
while eggplants cost $4 each.
Draw a graph that shows the combinations of the two goods Annie can
consume (put peas on the horizontal axis and label the axes and the intercepts). Given this
constraint, Annie chooses to consume 8 cans of peas. Label her preferred bundle on the
graph and be clear to show that this is optimal bundle.
The price of eggplants falls to $2. Explain the effect on Annie's consumption
of eggplants and peas. Draw a new graph with both budget constraints, the old and new
indifference curves indicating her preferred bundles and explain any income and
substitution effects.
5
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