Write down equation for jims new budget constraint on the

Reference no: EM13391207

Jim buys only bananas and CDs. Suppose that Jim's income is $40, bananas cost $0.80 per pound, and CDs cost $8 each.

(a) Write the equation for Jim's budget constraint and graph it.

(b) Suppose that Jim's optimal consumption bundle is 10 pounds of bananas and 4 CDs. Verify that he spends all of his income on this bundle. Illustrate this consumption choice on your graph for part (a), assuming that Jim's indifference curves are downward-sloping and convex.

(c) Suppose the price of CD's decreases to $5. Write the equation for Jim's new budget constraint. On a new graph, illustrate the impact of this price change on Jim's budget constraint (by drawing Jim's old and new budget constraints).

(d) Assuming that (1) bananas are a normal good, and (2) the income effect dominates for banana consumption, what is the effect of the price decrease of CDs on Jim's consumption of bananas? Explain why. On your graph from part (c), show the impact of the change in the price of CDs on Jim's consumption bundle, by decomposing it into the income and substitution effects. Carefully label the income effect, substitution effect and total effect on banana consumption on your graph (label the relevant consumption bundles, mark the sizes of each effect along the relevant axis, and use arrows to indicate the direction of each effect)

Reference no: EM13391207

Questions Cloud

Once youve found a full annual report complete each part of : research bank of america and access the companys web page on the internet to read their most recent annual report. the

You are given following demand function for rm q 20 - p : you are given the following demand function for the ?rm q 20 - p. its total cost function is tc q2 8q 2.

How was the hoosier burger project identified and selected : read the hoosier burger scenario of the text and address the following in a 1 to 3 page apa style papera. how was the

Take a position on one of the following statements a : 1.take a position on one of the following statements a ldquoall brands have a limited life as indicated by the product

Write down equation for jims new budget constraint on the : jim buys only bananas and cds. suppose that jims income is 40 bananas cost 0.80 per pound and cds cost 8 each.a write

Determine the asp in terms of a source for it applications : a what is an asp in terms of a source for it applications? what are advantages and disadvantages of using one? when

Critically reflect on the importance of selecting the right : we examined two very important topics in finance this week capital budgeting and dividend policy.critically reflect on

In brief describe codification and personalization as they : briefly explain codification and personalization as they relate to knowledge management. how does the sort of knowledge

You have a challenge to overcome in the marketplace nearly : tou are the marketing manager responsible for launching an innovative new product called v fusion energy. see this web

User Account

All Pages