Consider the following pairs of goods: Right and left boots Hazelnut Butter and Almond Butter Iphone and iphone charger Whiteboard and Chalkboard a) For each pair, state whether the goods are perfect substitutes, perfect complements, or neither. b) Discuss the shape of the indifference curve for each pair and explain the relationship between its shape and the marginal rate of substitution as the quantities of the two goods change.

1. Jim's preferences for pears and apples can be summarized by the following utility function: U(Xa,Xp)=XaXp where xa is the quantity of apples and xp is the quantity of pears. a) Draw an indifference curve for Jim by calculating a series of bundles that all produce the same level of "utility" and plotting them. Interpret the slope of the indifference curve (the marginal rate of substitution). b) Calculate the formula for Jim's marginal rate of substitution, as a function of apples and pears consumed.¹ c) What happens to the numeric value of Jim's marginal rate of substitution along an indifference curve (i.e., holds his utility constant) as he increases the number of pears he consumes and decreases the number of apples? For example, compare his MRS for a bundle consisting of 9 apples and 4 pears to his MRS for a bundle consisting of 9 pears and 4 apples and interpret the change. d) Suppose something increases Jim's desire for apples (for example, apples are found to reduce the risk of…

Why do we decompose the price effect into income and substitution effects?

Question #3 Please explain what are the substitution and income effects (a detailed response is expected). Mark consumes two goods apples and oranges. If the price of orange increases from $2 to $4 and orange is an inferior good, please illustrate graphically the income and substitution effects. Please label your diagram carefully and provide explanation. Qd = 3300 – 2P and Qs = 500 + 8p Solve for: Price, Quantity and Market equilibria