Unformatted text preview: 2. Label the Budget Line corresponding to the new prices as “BLnew”. 3. Using graphical techniques, find the optimal bundle after the price change. Label the amount of Good 1 “xnew”. 4. Shift BLnew until it is tangent to ICorig. Label this shifted line “BLcompensated” and the amount of Good 1 in the tangency point “xsubs”. 5. The Substitution Effect is xsubs ? xorig. The Income Effect is xnew ? xsubs....
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- Fall '07
- individual demand curve, optimal bundle, price change, graphical techniques