Chapter 10A, Problem 12P

To determine

To answer:

The questions by considering the situations given

Concept Introduction:

Budget line: The budget line shows the various combinations of goods and services that can be purchased with the given level of income and considering the prices of other products.

Indifference curve: The indifference curve is a line showing all possible combinations of two goods which give the consumers equal satisfaction. In other words the consumer would be indifferent in these points.

Substitution effect: The substitution effect is an economic theory in which when the price rises or income of the people falls people will substitute the dearer goods with less expensive alternative goods.

Income effect: The income effect is described as the change in the quantity of goods and services due to a change in the income of the people