What is the slope of bc-one and what is the slope of bc-two

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Problem

Suppose Gary only consumes pizza and beer, and his income is $200. Originally, a 6-pack of beer costs $10, and each pizza costs $10. Eventually, taxes push the market price of beer up to $20 per 6-pack. Below is the start of a graph that shows Gary's budget constraint before and after the change in the price of beer, along with his corresponding indifference curves and tangency points.

I. Label the appropriate axes based on which one represents quantity of pizza consumed (Qp) and quantity of beer consumed (Qb).

II. Label Gary's budget constraint at the original prices BC1. Label his budget constraint at the new prices BC2.

III. Label the intercepts (i.e. end points) of both BC1 and BC2. Get the instant assignment help.

IV. What is the slope of BC1? What is the slope of BC2?

V. Label his original indifference curve IC1 and his new indifference curve IC2. Label his original consumption bundle A and his new consumption bundle B.

VI. Graphically depict (clearly!) the income and substitution effects for both pizza and beer following the examples shown in your textbook and in class.

Reference no: EM133918383

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