Revist the example from question 3a. Recreate this graph, and add the following 2 things to your graph: 1) a compensated budget constraint and 2) a third indifference curve that captures the optimal choice on that compensated budget constraint curve. Label 3 points: 1) the original optimal choice, 2) the optimal choice after the price change, and 3) the optimal choice on the compensated budget constraint. Use this new graph to answer the following questions. (a) Graphically, what is the substitution effect? (b) Graphically, what is the income effect?

Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter6: Consumer Choice And Demand
Section: Chapter Questions
Problem 6QFR
icon
Related questions
Question
not use ai please
Revist the example from question 3a. Recreate this graph, and add the following
2 things to your graph: 1) a compensated budget constraint and 2) a third
indifference curve that captures the optimal choice on that compensated budget
constraint curve. Label 3 points: 1) the original optimal choice, 2) the optimal
choice after the price change, and 3) the optimal choice on the compensated
budget constraint. Use this new graph to answer the following questions.
(a) Graphically, what is the substitution effect?
(b) Graphically, what is the income effect?
Transcribed Image Text:Revist the example from question 3a. Recreate this graph, and add the following 2 things to your graph: 1) a compensated budget constraint and 2) a third indifference curve that captures the optimal choice on that compensated budget constraint curve. Label 3 points: 1) the original optimal choice, 2) the optimal choice after the price change, and 3) the optimal choice on the compensated budget constraint. Use this new graph to answer the following questions. (a) Graphically, what is the substitution effect? (b) Graphically, what is the income effect?
Expert Solution
steps

Step by step

Solved in 2 steps with 1 images

Blurred answer
Recommended textbooks for you
Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
Economics
ISBN:
9781285635101
Author:
MCEACHERN
Publisher:
Cengage
Micro Economics For Today
Micro Economics For Today
Economics
ISBN:
9781337613064
Author:
Tucker, Irvin B.
Publisher:
Cengage,
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Economics (MindTap Course List)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Microeconomics
Microeconomics
Economics
ISBN:
9781337617406
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Economics:
Economics:
Economics
ISBN:
9781285859460
Author:
BOYES, William
Publisher:
Cengage Learning