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Examine the graph below to answer the following question regarding "substitution and income effects" on consumer choices. The graph depicts these effects in response to a fall in the market price for oranges. The line "BL1" represents our original budget constraint line and "1C1" shows our original indifference curve. Next we see a counter-clockwise rotation in the budget constraint line to account for the drop in the market price of oranges which results in a new budget constraint line shown as "BL2" and a new indifference curve "IC2. Identify the points on the graph that capture the "substitution effect" and the points that capture- the "income effect", respectively. Bananas BLI Consumers buy more oranges because they are now cheaper than bananas IC2 ICI BL2 Oranges O substitution effect from A to B; income effect from B to C O income effect from A to B; substitution effect from B to C O income effect from A to C; substitution effect from A to B O substitution effect from A to C: income effect from A to B

Examine the graph below to answer the following question regarding "substitution and income effects" on consumer choices. The graph depicts these effects in response to a fall in the market price for oranges. The line "BL1" represents our original budget constraint line and "1C1" shows our original indifference curve. Next we see a counter-clockwise rotation in the budget constraint line to account for the drop in the market price of oranges which results in a new budget constraint line shown as "BL2" and a new indifference curve "IC2. Identify the points on the graph that capture the "substitution effect" and the points that capture- the "income effect", respectively. Bananas BLI Consumers buy more oranges because they are now cheaper than bananas IC2 ICI BL2 Oranges O substitution effect from A to B; income effect from B to C O income effect from A to B; substitution effect from B to C O income effect from A to C; substitution effect from A to B O substitution effect from A to C: income effect from A to B

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 1PA
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O00 Examine the graph below to answer the following question regarding "substitution and income effects" on consumer choices. The graph depicts these effects in response to a fall in the market price for oranges. The line "BL1" represents our original budget constraint line and "IC1" shows our original indifference curve. Next we see a counter-clockwise rotation in the budget constraint line to account for the drop in the market price of oranges which results in a new budget constraint line shown as "BL2" and a new indifference curve IC2". Identify the points on the graph that capture the "substitution effect" and the points that capture the "income effect", respectively. Bananas BLI Consumers buy more oranges because they are now cheaper than bananas IC2 ICI BL2 A B C Oranges substitution effect from A to B; income effect from B to C income effect from A to B; substitution effect from B to C O Income effect from A to C; substitution effect from A to B O substitution effect from A to C: income effect from A to B
Transcribed Image Text:O00 Examine the graph below to answer the following question regarding "substitution and income effects" on consumer choices. The graph depicts these effects in response to a fall in the market price for oranges. The line "BL1" represents our original budget constraint line and "IC1" shows our original indifference curve. Next we see a counter-clockwise rotation in the budget constraint line to account for the drop in the market price of oranges which results in a new budget constraint line shown as "BL2" and a new indifference curve IC2". Identify the points on the graph that capture the "substitution effect" and the points that capture the "income effect", respectively. Bananas BLI Consumers buy more oranges because they are now cheaper than bananas IC2 ICI BL2 A B C Oranges substitution effect from A to B; income effect from B to C income effect from A to B; substitution effect from B to C O Income effect from A to C; substitution effect from A to B O substitution effect from A to C: income effect from A to B
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