Problem on income and substitution effects

Jim a vegetarian. All he eats is lettuce and cheese. His original budget constraint and utility maximizing bundle are illustrated in the graph shown below:

a. The price of lettuce falls, but we observe that Jim’s consumption of lettuce remains unchanged. Using the graph, illustratethe price change. On the graph, clearly label the old and new consumption bundles. Derive and label the income and substitution effects for lettuce.

b. Is cheese a normal good to Jim? How do you know? If so, can you tell if it’s a luxury or a necessity?

View Complete Question

Related Questions in Microeconomics

Q : Total revenue at level of sales and

HoloIMAGine has patented a holographic technology which makes 3-D photography obtainable to consumers. The level of sales and production at that HoloIMAGine would take in its greatest probable total revenue is: (i) output q3

Q : Internal financing in Corporate Finance

Can someone help me in finding out the precise answer from the given options. The corporations might get internal financing by: (i) Borrowing from the stockholders. (ii) Reinvesting the corporate income rather than paying it out as the dividends to stockholders. (iii)

Q : Perfectly elastic supply problem When

When will a rise in demand entail an increase in the quantity demanded however no change in the price?

Q : Horizontal demand curve facing purely

The demand curve facing a purely competitive firm is: (w) horizontal. (x) vertical. (y) downward sloping. (z) the horizontal summation of individual demand curves. Can someone explain/help me with best solution abo

Q : Free Trade Agreement Tell me the answer

Tell me the answer of this question. Critics of the North American Free Trade Agreement (NAFTA) falsely feared that it would: A) increase the flow of illegal Mexican immigrants to the United States. B) cause the European Union and Japan to raise trade barriers against

Q : Relatively inelastic supply curve in

Marginal revenue is below average revenue as [TR/Q] for a firm along with market power since: (w) the demand curve this faces is negatively sloped. (x) its supply curve is relatively inelastic. (y) marginal cost is be

Q : Elucidate business cycles Elucidate

Elucidate briefly business cycles and what role do the Federal Government and Federal Reserve has in trying to manage them?

Q : Maximize profits with producing demand

An imperfectly competitive firm can’t maximize its profits through producing where demand is: (w) elastic. (x) unitarily elastic. (y) inelastic. (z) downward sloping. Can someone explain/help me with best sol

Q : Statement of Featherbedding I have a

I have a problem in economics on Resources and Products Flow Model. Please help me in the following question. The featherbedding is: (1) Practiced through only migratory ducks and geese. (2) Practiced through female song birds on each spring. (3) Increasingly substitu

Q : Short-run shut-down point for profits

Short-run shut-down point of the cranberry farm occurs at a price of: (i) P1. (ii) P2. (iii) P3. (iv) P4. (v) Not computable from these figures.

Discover Q & A

Leading Solution Library

Avail More Than 1456269 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads

No hassle, Instant Access

Start Discovering

18,76,764

1929195
Asked

3,689

Active Tutors

1456269

Questions
Answered

Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!

Submit Assignment