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?
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
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not use ai please
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?
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