Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971493
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 21.3, Problem 3QQ
To determine
The income effect and the substitution effect.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
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 Microeconomics (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
Knowledge Booster
Similar questions
- Question No. 5| Hafidh'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 $200 to 350$. Explain and show how Hafidh's budget line changes with watches on the x-axis.arrow_forwardThe graph represents a budget constraint showing the purchases of Good X and Good Y. If the price of good X falls, then budget constraint will move from budget constraintarrow_forwardDraw a graph with Coke on the vertical axis and Pepsi on the horizontal axis. Plot an initial budget line and indifference curve for a consumer. Scenario: the price of Coke goes down. Show what happens to the budget line and draw the new indifference curve. Decompose the full effect of the change in Coke consumed into a substitution effect and an income effect.arrow_forward
- 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
- Draw a budget constraint and indifference curves for two goods-cheese and wine. Show what happens to the budget constraint and the consumer's optimum when the there is an increase in income tax by 10 percent.arrow_forwardA consumer has income of $3,000. Wine costs $3 per glass, and cheese costs $6 per pound. Make a graph. Draw the consumer’s budget constraint with wine on the vertical axis. Make sure to label the axes.arrow_forwardAssume that you only buy two goods, fish and Fanta soda. You are analyzing your personal consumption for the two goods. Assume that you have a weekly budget of $80, fish costs $5 per Ib and Fanta costs $2 a soda. a. Draw your budget line with Fanta on the y-axis. Calculate the x and y intercepts as well as the slope of the budget line. Include your personal indifference curve to show your optimal consumption between the two goods (assume that your indifference curve is such that you consume positive values of each good). 3. Assume that the price of fish falls from $5 per Ib to $4 per Ib. On a new graph draw the change in price along with the new intercept(s) and new optimal consumption point.arrow_forward
- 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.arrow_forwardBirgitta spends 150 shillings per month on coffee and buns at the cafeteria. A cup of coffee costs 15 shillings and a bun costs 10 shillings. Write the equation for Birgitta’s cafeteria budget constraint and draw it in a diagram. Assume that Birgitta never drinks coffee without eating one bun, and never eats buns without drinking coffee. How much of each will she consume? Draw some of her indifference curves.arrow_forwardconsider a consumer who consumes only two goods :peas and beans. She has an income of K10, the price of beans is k0.20 while the price of peas is0.40.a) Draw the budget lineb) Suppose that the consumer consumes 30kg of beans. Assuming that she spends all her income, how many kgs of peas is she going to consume?c) Assume that the price of peas falls from k0.40 to k0.20. Assuming that the consumer still consumes 30kg of beans, find the new quantity of peas.d) After the decrease in price of peas to k0.20 assume that the consumer is just as well off as she was in (b) if she has an income of K7.60. However, with that income and the new price of peas, she would have consumed 20kg of beans. Find the quantity of peas she would have consumed in this case. Show it on the graph.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of MicroeconomicsEconomicsISBN:9781305156050Author:N. Gregory MankiwPublisher:Cengage Learning
Principles of Microeconomics (MindTap Course List)EconomicsISBN:9781305971493Author:N. Gregory MankiwPublisher:Cengage Learning
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Principles of Microeconomics
Economics
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Microeconomics (MindTap Course List)
Economics
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning