14. Consider the following diagram, which illustrates Gaston’s preferences for red beans and rice. Gaston has an income of $20. Rice costs $2 per serving.

a. Derive Gaston’s demand for red beans. Use prices of $2 and $4 in your analysis. Graph your results, and connect the points you plotted to yield Gaston’s demand for red beans.

b. Suppose that the price of rice increases to $3.
Again, derive Gaston’s demand for red beans using the same prices you used in part (a).

c. Does Gaston’s demand for red beans increase or decrease as a result of the increase in the price of rice?

d. Does your answer to

(c) indicate that red beans and rice are substitutes or complements?

Transcribed Image Text:

Rice 10- 8. 6 4 2. 0 UA U3 -U- $5 U 1 2 3 4 5 6 7 8 9 10 Red beans