Question
. Suppose that a local gardener raises eggplants and tomatoes to consume and to sell in the market. She always consumes eggplants and tomatoes together
. Suppose that a local gardener raises eggplants and tomatoes to consume and to sell in the market. She always consumes eggplants and tomatoes together in a 1:1 ratio. One week her garden yields 25 pounds of eggplants and 5 pounds of tomatoes. The price of each vegetable is $2.50 per pound. (There are no other commodities of interest.) a. Graph this person's budget line and label the endowment point E. Give the equation for this budget line. b. How many pounds of eggplants and of tomatoes will this person choose to consume? Give the net demands for the two goods and indicate whether the person wishes to buy or sell the particular good. Illustrate your answer on the graph from part a. c. Suppose the price of tomatoes rises to $7.50 per pound. Answer part b for this new situation. d. How much of the change in the demand for tomatoes between parts b and c was due to the substitution eect? How much was due to the income eect
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started