Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 21.3, Problem 3QQ
To determine
The income effect and the substitution effect.
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draw a budget constraint and indifference curves for pizza and pepsi .show what happens to budget constraint and consumer's optimum when the price of pizza rises .in your diagram, decompose the change into an income effect and a substitution effect
Jerry spends his entire budget on bread and gasoline. His preferences are complete, transitive,
monotonic, and convex. For Jerry, bread is an inferior good that follows the law of demand.
Moreover, his cross-price elasticity of demand for gasoline with respect to the price of bread is
negative. Suppose the price of bread increases, all else constant.
a. Create a chart to show the total, income, and substitution effects on bread and gasoline of the
increase in the price of bread.
b. Use budget lines and indifference curves to graphically illustrate the three effects. Be sure to
label each effect on your graph (or through the chart from part a) and plot bread on the x-axis
and gasoline on the y-axis
Please answer fast
Chapter 21 Solutions
Principles of Economics (MindTap Course List)
Ch. 21.1 - Prob. 1QQCh. 21.2 - Prob. 2QQCh. 21.3 - Prob. 3QQCh. 21.4 - Prob. 4QQCh. 21 - Prob. 1CQQCh. 21 - Prob. 2CQQCh. 21 - Prob. 3CQQCh. 21 - Prob. 4CQQCh. 21 - Prob. 5CQQCh. 21 - Prob. 6CQQ
Ch. 21 - Prob. 1QRCh. 21 - Prob. 2QRCh. 21 - Prob. 3QRCh. 21 - Prob. 4QRCh. 21 - Prob. 5QRCh. 21 - Prob. 6QRCh. 21 - Prob. 7QRCh. 21 - Prob. 1PACh. 21 - Prob. 2PACh. 21 - Prob. 3PACh. 21 - Prob. 4PACh. 21 - Prob. 5PACh. 21 - Prob. 6PACh. 21 - Prob. 7PACh. 21 - Prob. 8PACh. 21 - Prob. 9PACh. 21 - Prob. 10PACh. 21 - Prob. 11PACh. 21 - Prob. 12PA
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- Consumer choiceJo buys muffins and cupcakes at a bakery. Jo’s weekly budget for baked goods is $70. The priceof muffins is $1.25. The price of cupcakes is $1.75.a) Write down Jo’s budget constraint: express the quantity of cupcakes as a function of thequantity of muffins.b) Show Jo’s budget constraint on a graph. Let quantity of muffins be on the horizontal axis. Letquantity of cupcakes be on the vertical axis.c) Show the following consumption bundles (points) on the graph. Calculate the cost of eachconsumption bundle and state which one of them are feasible.• Point A: 49 muffins and 3 cupcakes.• Point B: 38 muffins and 15 cupcakes.• Point C: 24 muffins and 24 cupcakes.• Point D: 14 muffins and 30 cupcakes.d) Which of these four points can be Jo’s optimal consumption bundle? Why?e) The price of cupcakes decreased to $1.5. Provide an example of a consumption bundle thatbecame feasible now but wasn’t feasible before the decrease in price. Calculate the cost ofthis consumption bundle…arrow_forwardConsumer choiceJo buys muffins and cupcakes at a bakery. Jo’s weekly budget for baked goods is $70. The priceof muffins is $1.25. The price of cupcakes is $1.75.a) Write down Jo’s budget constraint: express the quantity of cupcakes as a function of thequantity of muffins.b) Show Jo’s budget constraint on a graph. Let quantity of muffins be on the horizontal axis. Letquantity of cupcakes be on the vertical axis.c) Show the following consumption bundles (points) on the graph. Calculate the cost of eachconsumption bundle and state which one of them are feasible.• Point A: 49 muffins and 3 cupcakes.• Point B: 38 muffins and 15 cupcakes.• Point C: 24 muffins and 24 cupcakes.• Point D: 14 muffins and 30 cupcakes.arrow_forwardHafidh's income is $200 a month. The price of watch is $25 a show, and the price of a Jeans is $15. a) Calculate the equation for Hafidh's budget line b) Draw a graph of Hafidh's budget line with the quantity of Watches on the x-axis. c) If Hafidh's income increased from S200 to 350S. Explain and show how Hafidh's budget line changes with watches on the x-axis.arrow_forward
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