The cause for a parallel shift in the budget constraint.

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Question 4 A consumer has income of $15,000. Pillows costs $35 per pillow, and soda costs $70 per bottle. Draw the consumer’s budget constraint (put pillow on the horizontal axis). What is the slope of this budget constraint? Suppose his income increases from $15,000 to $20,000. Illustrate what happens if both pillows and soda are normal goods. The price of pillows rises from $35 to $40 per pillow, while the price of sodas is unchanged. For a consumer with constant income of $15,000, show what happens to consumption of both goods (assume both goods are normal goods). Decompose the change into income and substitution effects. Under what circumstance(s) if any can an increase in the price of pillows induce a consumer to buy more of that good? Explain. Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation.

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Chapter 21, Problem 1QCMC

To determine

The cause for a parallel shift in the budget constraint.

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Question 4 A consumer has income of $15,000. Pillows costs $35 per pillow, and soda costs $70 per bottle. Draw the consumer’s budget constraint (put pillow on the horizontal axis). What is the slope of this budget constraint? Suppose his income increases from $15,000 to $20,000. Illustrate what happens if both pillows and soda are normal goods. The price of pillows rises from $35 to $40 per pillow, while the price of sodas is unchanged. For a consumer with constant income of $15,000, show what happens to consumption of both goods (assume both goods are normal goods). Decompose the change into income and substitution effects. Under what circumstance(s) if any can an increase in the price of pillows induce a consumer to buy more of that good? Explain. Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation.

4) Refer to Figure 6.6. Bill's budget constraint was originally AD. If his new budget constraint is EF, then his incomeA) increased.B) decreased.C) increased and the price of black beans price increased.D) increased and the price of bell peppers decreased.5) Refer to Figure 6.6. Bill's budget constraint is BD. Bill's income is $600, the price of a bell pepper is $1, and the price of a bag of black beans is $2. At point D Bill is buying ________ bell peppers and ________ bags of blackbeans.A) 600; 300 B) 0; 300 C) 600; 0 D) 300; 150

A consumer has income of $15,000. Pillows costs $35 per pillow, and soda costs $70 per bottle. a. Draw the consumer's budget constraint (put pillow on the horizontal axis). What is the slope of this budget constraint? b. Suppose his income increases from $15,000 to $20,000. Illustrate what happens if both pillows and soda are normal goods. c. The price of pillows rises from $35 to $40 per pillow, while the price of sodas is unchanged. For a consumer with constant income of $15,000, show what happens to consumption of both goods (assume both goods are normal goods). Decompose the change into income and substitution effects. d. Under what circumstance(s) if any can an increase in the price of pillows induce a consumer to buy more of that good? Explain. e. Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation.