Chocolate Syrup (cups) 10 5 0 5 Mustard (gallons) 4) Robert's preferences are shown in the diagram above 10 Suppose that Robert has $96. The price of Mustard is $24/gallon, and the price of Syrup is $12/cup. Suddenly the price of Mustard falls to $12/gallon. a) Show the Income and Substitution effects of this change on the diagram. b) Is Robert better off? c) At the new prices, how much money does Robert need to be as happy as he was initially? d) What is the most that Robert is willing to pay to induce the Mustard seller to reduce the price from $24/gallon to $12/gallon?

Chocolate Syrup (cups) 10 5 0 5 Mustard (gallons) 4) Robert's preferences are shown in the diagram above 10 Suppose that Robert has $96. The price of Mustard is $24/gallon, and the price of Syrup is $12/cup. Suddenly the price of Mustard falls to $12/gallon. a) Show the Income and Substitution effects of this change on the diagram. b) Is Robert better off? c) At the new prices, how much money does Robert need to be as happy as he was initially? d) What is the most that Robert is willing to pay to induce the Mustard seller to reduce the price from $24/gallon to $12/gallon?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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CS 11 Economics
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Suppose that with a budget of $210, Fatima spends $126 on sushi and $84 on bagels when sushi costs $2 per piece and bagels cost $2 per bagel. Then, after the price of bagels falls to $1 per bagel. Instructions: Enter your answers as a whole number. How many pieces of sushi and how many bagels did Fatima consume before the price change? pieces of sushi and bagels At the new prices, how much money would it have cost Fatima to buy those same quantities (that is, the quantities that she consumed before the price change)? Given that it used to take Fatima's entire $210 to buy those quantities, how big is the income effect caused by the lower price of bagels?
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