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2. Identifying luxuries versus necessities Suppose that you are trying to determine whether or not your friend Valerie views a bottle of wine as a necessity, a luxury, or in between a necessity and a luxury. Valerie has a weekly income of $60 to spend on either wine or other consumption. The price of wine is $15 per bottle, and the vertical axis is treated as a composite good representing dollars spent on other consumption. On the following graph, use the blue line (circle symbol) to graph Valerie's budget constraint (BC1). Then, place the black point (plus symbol) on the graph to indicate the best bundle in this case. Note: Dashed drop lines will automatically extend to both axes. OTHER CONSUMPTION (Dollars per week) 100 90 80 70 60 50 40 30 20 10 0 0 + 1 2 3 4 5 6 7 WINE (Bottles per week) 8 IC₂ ・IC₁ 9 H 10 BC₁ + Initial Best Bundle BC₂ New Best Bundle ?

2. Identifying luxuries versus necessities Suppose that you are trying to determine whether or not your friend Valerie views a bottle of wine as a necessity, a luxury, or in between a necessity and a luxury. Valerie has a weekly income of $60 to spend on either wine or other consumption. The price of wine is $15 per bottle, and the vertical axis is treated as a composite good representing dollars spent on other consumption. On the following graph, use the blue line (circle symbol) to graph Valerie's budget constraint (BC1). Then, place the black point (plus symbol) on the graph to indicate the best bundle in this case. Note: Dashed drop lines will automatically extend to both axes. OTHER CONSUMPTION (Dollars per week) 100 90 80 70 60 50 40 30 20 10 0 0 + 1 2 3 4 5 6 7 WINE (Bottles per week) 8 IC₂ ・IC₁ 9 H 10 BC₁ + Initial Best Bundle BC₂ New Best Bundle ?

Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter6: Consumer Choice And Demand
Section: Chapter Questions
Problem 2QFR
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2. Identifying luxuries versus necessities Suppose that you are trying to determine whether or not your friend Valerie views a bottle of wine as a necessity, a luxury, or in between a necessity and a luxury. Valerie has a weekly income of $60 to spend on either wine or other consumption. The price of wine is $15 per bottle, and the vertical axis is treated as a composite good representing dollars spent on other consumption. On the following graph, use the blue line (circle symbol) to graph Valerie's budget constraint (BC1). Then, place the black point (plus symbol) on the graph to indicate the best bundle in this case. Note: Dashed drop lines will automatically extend to both axes. OTHER CONSUMPTION (Dollars per week) 100 90 80 70 60 50 40 30 10 0 0 1 + 2 3 5 6 7 WINE (Bottles per week) 4 8 -IC₂ IC, 9 10 O BC₁ + Initial Best Bundle BC₂ New Best Bundle ?
Transcribed Image Text:2. Identifying luxuries versus necessities Suppose that you are trying to determine whether or not your friend Valerie views a bottle of wine as a necessity, a luxury, or in between a necessity and a luxury. Valerie has a weekly income of $60 to spend on either wine or other consumption. The price of wine is $15 per bottle, and the vertical axis is treated as a composite good representing dollars spent on other consumption. On the following graph, use the blue line (circle symbol) to graph Valerie's budget constraint (BC1). Then, place the black point (plus symbol) on the graph to indicate the best bundle in this case. Note: Dashed drop lines will automatically extend to both axes. OTHER CONSUMPTION (Dollars per week) 100 90 80 70 60 50 40 30 10 0 0 1 + 2 3 5 6 7 WINE (Bottles per week) 4 8 -IC₂ IC, 9 10 O BC₁ + Initial Best Bundle BC₂ New Best Bundle ?
Now, suppose that Valerie's weekly income increases to $90. Use the green line (triangle symbol) to graph the new budget constraint (BC2). Then, place the grey point (star symbol) on the graph to indicate the new best bundle. According to the previous graph, a bottle of wine is True or False: Valerie's preferences exhibit homothetic tastes. True False
Transcribed Image Text:Now, suppose that Valerie's weekly income increases to $90. Use the green line (triangle symbol) to graph the new budget constraint (BC2). Then, place the grey point (star symbol) on the graph to indicate the new best bundle. According to the previous graph, a bottle of wine is True or False: Valerie's preferences exhibit homothetic tastes. True False
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