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Fred has $20. His utility from dino-burgers ( D ) and pterodactyl drumsticks1( T ) is u ( D , T )= D +1 T
Fred has $20. His utility from dino-burgers (D) and pterodactyl drumsticks1(T) is
u(D,T)=D+1T.
- Prices are now $1 each for bothDandT. What bundle does Fred choose?What's his utility?
- The price of dino-burgers has gone up to $2.50 as dinosaurs have become harder to find. What bundle does Fred choose now? What's his utility?
- Draw a diagram with both budget constraints and both indifference curves. Mark Fred's optimal bundles for each part. MAKE YOUR IC'S IN DASHED LINES so the grader can distinguish them from the BC's. PutDon the horizontal axis.
- Add in a compensated budget constraint (BCcomp) that will let you decompose the effect of this price change. Write the equation forBCcomp.
- What is the total effect of this price rise onD? What is the income effect of this price rise onD? What is the substitution effect of this price rise onD?
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Statistics Principles And Methods
Authors: Richard A. Johnson, Gouri K. Bhattacharyya
7th Edition
8126557745, 470904119, 978-0470904114
