A In The Accompanying Diagram Let Pizza And Calzones Be Perfect Substitutes The Initial Optimal Equilibrium Given Th 1 (67.69 KiB) Viewed 27 times
A In The Accompanying Diagram Let Pizza And Calzones Be Perfect Substitutes The Initial Optimal Equilibrium Given Th 2 (44.56 KiB) Viewed 27 times
a. In the accompanying diagram, let pizza and calzones be perfect substitutes. The initial optimal equilibrium, given the budget constraint BC₁, occurs at A. A decrease in the price of calzones causes the budget constraint to rotate from BC to BC₂, reaching the higher utility curve U₂, where optimal consumption occurs at B. Move the hypothetical budget line BC to its correct position to show the substitution effect. c. Now, suppose pizza and calzones are perfect complements. The initial optimal equilibrium, as above, occurs at A. A decrease in the price of calzones causes the budget constraint to rotate from BC, to BC₂, reaching the higher utility curve U₂, where optimal consumption is now B. Pizza Move the hypothetical budget line BC to its correct position to show the substitution effect. 20 REHRNER ros FIL 18 17 16 15 14 b. The change in quantity of calzones demanded caused by the price change is accounted for by a combination of the income effect and substitution effect. 124 20 CHISING568 19 18 17 10 15 14 13 12 11 10 9 0 5 BC A 0123456 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Calmones BC 2 Calanes 012345678610 11 12 13 14 15 16 17 18 19 20
d. The change in quantity of calzones demanded caused by the price change is fully accounted for by the income effect e. Now, let pizza and calzones be substitutes or complements but not perfect substitutes or perfect complements. As above, the initial optimum is at A. A decrease in the price of calzones causes the budget constraint to rotate from BC, to BC₂, reaching the higher utility curve U₂, where optimal consumption is now B. As before, move the hypothetical budget line BC to its correct position to show the substitution effect. Pizza 19 18 17 16 15 14 13 5 f. The change in quantity of calzones demanded caused by the price change is fully accounted for by the substitution effect BC 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Calines
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