- Consider The Following Three Graphs Which Illustrate The Preferences Of Three Consumers Bob Carol And Ted Regarding 1 (59.8 KiB) Viewed 9 times
- Consider The Following Three Graphs Which Illustrate The Preferences Of Three Consumers Bob Carol And Ted Regarding 2 (36.63 KiB) Viewed 9 times
a. Suppose that the price of peaches falls to S2. In each diagram, place the curve labeled NBC-new budget contraint to reflect this price change. Given the new optimal bundle of apples and peaches each consumer would buy, indicate in the first column of the accompanying table how the new quantity of peaches compares with the original quantity (e.g.. an increase of I would be denoted by +1). Bob c. Now add the income effect. Compare cach consumer's peach consumption in b to his or her final peach consumption in a, and indicate the difference in the rightmost column in the table. Make sure that for each consumer, the numbers in the last two columns add up to the number in the first column. Carol Ted 2 Total effect of price change Substitution effect of price change d. For Bob, peaches are For Carol, they're Ted, they're E b. For each consumer, determine the substitution effect of the price change by placing the curve labelled HBC-for "hypothetical budget constraint" so that it has the same slope as the new budget constraint but is just tangent to the consumer's original indifference curve. In the second column in the accompanying table, indicate the change in peach consumption arising from the substitution effect. Income effect of price change good. good. good. For