Quiz 9. Demand Effects2

# Quiz 9. Demand Effects2 - x falls to \$8.50 Draw his new...

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Shomu Banerjee ECON 201 Ysidro’s typical indifference curve is drawn below. Note that it is piecewise linear with kinks that lie along the two rays from the origin. (a) Ysidro’s income is \$204, the price of x is \$17, and the price of y is \$12. Draw his old budget constraint and label the utility maximizing point as A . (b) Ysidro’s income remains at \$204, the price of y is still \$12, but the price of
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Unformatted text preview: x falls to \$8.50. Draw his new budget constraint and label the utility maximizing point as C . Also draw the new indifference curve that passes through C . (c) Break up the price effect into substitution and income effects graphically. (d) How much more x does Ysidro buy as a result of his substitution effect? (e) How much more or less of x does Ysidro buy as a result of his income effect? 25 20 15 10 20 30 25 15 10 5 x y...
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