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Please make sure your answers are correct and answer each sub-question carefully and clearly. I will give positive feedback! 10. A consumer's indifference curves are
Please make sure your answers are correct and answer each sub-question carefully and clearly. I will give positive feedback!
10. A consumer's indifference curves are shown below. Only two curves are drawn. Other curves at different utility levels could be drawn similarly. y/x = 2/1 4 y/x = 1/2 2 U2 U1 O 2 4 X (a) This consumer has $4 to spend on good x and good y. The price of x is $2. The price of y is $1. Draw the budget line and indifference curves in your submitted worksheet and show the optimal choice for the consumer. (b) Now, price of x falls to $0.8. Draw the new budget line and show the optimal choice for the consumer. (c) Calculate numerically the new consumption quantities for x and y. Show your procedure of deriving the final answers. (d) Calculate numerically the amount of quantity change in x due to (i) substitution effect and (ii) income effect. [Optional question: Derive the demand function of this consumer when price of x is not higher than $1, given price of y fixed at $1 with income at $4.]Step by Step Solution
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