In which case are daycare and other goods substitutes

Reference no: EM131072517

Consider the set of choices facing the consumer in Figures 6.12, 6.13, and 6.14. The parent chooses between other goods and daycare.

(a) First, replicate this figure with one budget constraint and one indifference curve that together define a tangency (equilibrium) solution.

(b) Suppose now that daycare is subsidized through a price reduction. Draw two possible equilibria, one where "other goods" purchased increase, and the second where they decrease. In which case are daycare and other goods substitutes? In which case are they complements?

Figures 6.12, 6.13, and 6.14

Reference no: EM131072517

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