Question
Consider a consumer with preferences: U = 2 * min{X, Z}. The consumer has Income I = 10 and faces prices of PX = 2;
Consider a consumer with preferences: U = 2 * min{X, Z}. The consumer has Income I = 10 and faces prices of PX = 2; PZ = 4.
(a) Draw the budget constraint on a graph, including the correct numerical value for slope and intercepts.
(b) Find the optimal choice of Z and X and label this choice clearly on the graph.
(c) Draw an indifference that represents these preferences.
(d) Suppose that PZ doubles. Illustrate the new optimal choice on the graph.
(e) Draw the decomposition bundle and budget line on your graph and illustrate any substitution and income effects.
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Economics
Authors: Campbell McConnell, Stanley Brue, Sean Flynn
21st Edition
1259723224, 9781259723223
