Economics
Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Chapter 10.A, Problem 14P
To determine

Concept Introduction:

Indifference Curve: The graph that shows the goods providing the same satisfaction level is known as the indifference curve. They are downward slopping curve and convex to the origin. The two indifference curve lines never intersects each other.

Perfect Complement Goods: All those goods which are complement for each other that can be used only together. Example: car and petrol.

Budget Line: It is defined as the combination of all the goods that a consumer can purchase, exhausting all his income. The formula for the budget line is:

    Economics, Chapter 10.A, Problem 14P , additional homework tip  1

Here,

  • Economics, Chapter 10.A, Problem 14P , additional homework tip  2is the quantity of good X.
  • Economics, Chapter 10.A, Problem 14P , additional homework tip  3is the quantity of good Y.
  • Economics, Chapter 10.A, Problem 14P , additional homework tip  4is the total income.
  • Economics, Chapter 10.A, Problem 14P , additional homework tip  5is the price of good X.
  • Economics, Chapter 10.A, Problem 14P , additional homework tip  6is the price of good Y.

Substitution effects: It states that the demand of a good increases if the price of its substitute goods increase and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee increases.

Income effects: It states that the demand for normal goods and the income are directly related which means that when income increases then the demand for normal goods also increases and vice versa.

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