Riley has $6 to spend on ramen and apps for their phone. The price of a bowl of ramen is $2, and the price of an app is $1. Riley's preferences for ramen and apps are represented by the indifference curves on the next page. a. Determine which line (L1, L2, L3, L4, or L5) represents Riley's budget constraint. b. Find the utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of ramen Riley will buy. Suppose now that the price of a bowl of ramen is discounted for students to $1 per bowl. c. Determine which line (L1, L2, L3, L4, or L5) represents Riley's new budget constraint. d. Find the new utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of Ramen Riley will now buy. e. Find the size and direction (positive or negative) of the substitution effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. f. Find the size and direction (positive or negative) of the income effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. g. Based on your answers to parts e and f, is ramen a normal or an inferior good for Riley?

Riley has $6 to spend on ramen and apps for their phone. The price of a bowl of ramen is $2, and the price of an app is $1. Riley's preferences for ramen and apps are represented by the indifference curves on the next page. a. Determine which line (L1, L2, L3, L4, or L5) represents Riley's budget constraint. b. Find the utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of ramen Riley will buy. Suppose now that the price of a bowl of ramen is discounted for students to $1 per bowl. c. Determine which line (L1, L2, L3, L4, or L5) represents Riley's new budget constraint. d. Find the new utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of Ramen Riley will now buy. e. Find the size and direction (positive or negative) of the substitution effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. f. Find the size and direction (positive or negative) of the income effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. g. Based on your answers to parts e and f, is ramen a normal or an inferior good for Riley?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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