Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. What is the algebraic equation for Mrs. Griffiths budget constraint if dresses cost $25 each and handbags cost $14 each? How many of each good will she buy and represent this on a budget line with handbags on the horizontal axis Suppose the price of a dresses increases to $200 and income decreases to $4200. What is the new algebraic equation for Mrs. Griffiths budget constraint? Show the impact of the new budget line relative to the original budget line. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution.
Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. What is the algebraic equation for Mrs. Griffiths budget constraint if dresses cost $25 each and handbags cost $14 each? How many of each good will she buy and represent this on a budget line with handbags on the horizontal axis Suppose the price of a dresses increases to $200 and income decreases to $4200. What is the new algebraic equation for Mrs. Griffiths budget constraint? Show the impact of the new budget line relative to the original budget line. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution.
Chapter10: Consumer Choice Theory
Section: Chapter Questions
Problem 8P
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Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag.
What is the algebraic equation for Mrs. Griffiths budget constraint if dresses cost $25 each and handbags cost $14 each? How many of each good will she buy and represent this on a budget line with handbags on the horizontal axis
- Suppose the price of a dresses increases to $200 and income decreases to $4200. What is the new algebraic equation for Mrs. Griffiths budget constraint? Show the impact of the new budget line relative to the original budget line. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution.
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