Suppose that BC₁ on the following graph represents your initial budget constraint for good X and good Y, and point A represents the best bundle, given this choice set. After a change in the price of good X, your new budget constraint is now BC₂. The compensated budget is parallel to BC₂, representing the same tradeoff between good X and good Y, and it is tangent to the given indifference curve (U) at point B.

Suppose that BC₁ on the following graph represents your initial budget constraint for good X and good Y, and point A represents the best bundle, given this choice set. After a change in the price of good X, your new budget constraint is now BC₂. The compensated budget is parallel to BC₂, representing the same tradeoff between good X and good Y, and it is tangent to the given indifference curve (U) at point B.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 10SQ

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