Indifference curves, Econometrics

Assume that the allowance Peter receives from parents is his only income.  He used to spend $30 a month to buy Coke at $.60 per can.  Coke is an inferior good for Peter.  Further assume that on October 1 price of Coke dropped to $.50 a can, while prices of other goods did not change. If Peter continued buying the same quantities of Coke and other goods, this would have obviously saved him $5.00. Assume, however, that parents reduced Peter's October allowance by $5.00.   

Please choose and explain your answers to the following questions and illustrate them by a detailed graph or graphs where the quantities of Coke are displayed on the horizontal axis, while the quantities of the composite of "other goods" are on the vertical axis. In your graph(s) please clearly mark Peter's choices in September, October and November as points Es , Eo , En . Please also clearly mark the corresponding budget lines and indifference curves.  

(i) Will Peter, in fact, buy more or less Coke in October than in September? 

a. more

b. less

c. this cannot be determined without additional information.

Posted Date: 4/1/2013 3:45:23 AM | Location : United States







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