Breakdown the shift from the original point of consumption to the new point of consumption using the income and substitution effects. Please provide a detailed explanation in addition to the graph. You will need to draw a third indifference curve.
Suppose you have $30 and you are going to rent some movies and buy some sodas. Suppose movie rentals are $6.00 each and sodas are $1.00 each. Your original consumption bundle is 3 movies and 12 sodas. (Hint: put movie rentals on the X axis)
a) (2 points) Draw your budget line showing the different combinations of Movies that you can rent and sodas that you can purchase.
b) Suppose that movie rentals turn out to be half off ($3.00). Draw your new budget line on the same graph.
c) Draw the income compensated budget line
d) Draw an indifference curve tangent to your original budget line at your original purchase point.
e) Draw an indifference curve showing where you will purchase at the new prices
F) Breakdown the shift from the original point of consumption to the new point of consumption using the income and substitution effects. Please provide a detailed explanation in addition to the graph. You will need to draw a third indifference curve.
Please do e and f. If only one is allowed please answer F
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