Pants are now selling at a discount, reflected by the move from B0 to B1. Your i
ID: 1169095 • Letter: P
Question
Pants are now selling at a discount, reflected by the move from B0 to B1. Your initial consumption of shirts and pants is marked as point A on I0. Hypothetical budget constraint BH reflects - under the new prices - how much money you would need to stay as satisfied as you were at point A. On this graph, indicate what region on the new budget constraint would mean pants and shirts are normal. Also, which regions imply one is inferior while the other is normal -be sure to state for these regions which is the normal and which the inferior good. Lastly, indicate where each good would be quasilinearExplanation / Answer
You would not need any money to be satisfied as the new consumption is on the budget constraint.
The region above the budget constraint line Bh indicates that the goods are normal.
The triangle formed by the line Bo and Bh and the region above it indicates that one is inferior and one is normal. Pants are inferior and Shirts are normal goods.
The point of intersection of Bo and Bh (budget constraint) indicates where each goods would be quasilinear.
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