Suppose a student has monthly income of Rs 20,000. He consumes only two commodities Sandwich and Shawarma. The cost of Sandwich is Rs 100 each, and the cost of Shawarma is Rs 200 each. a) Draw the student’s budget constraint. What is the slope of his budget constraint? b) Suppose student gets a raise, so his income increases from Rs 20,000 to Rs 24,000. Show what happens to consumer optimal consumption choice if both Sandwich and Shawarma are normal goods. Now show what happens if Sandwich is an inferior good. c) Suppose consumer income decreases to Rs. 16,000. Show what happens if both Shawarma and Sandwich are normal goods. Now show what happens if Sandwich is an inferior good.
Suppose a student has monthly income of Rs 20,000. He consumes only two commodities Sandwich and Shawarma. The cost of Sandwich is Rs 100 each, and the cost of Shawarma is Rs 200 each. a) Draw the student’s budget constraint. What is the slope of his budget constraint? b) Suppose student gets a raise, so his income increases from Rs 20,000 to Rs 24,000. Show what happens to consumer optimal consumption choice if both Sandwich and Shawarma are normal goods. Now show what happens if Sandwich is an inferior good. c) Suppose consumer income decreases to Rs. 16,000. Show what happens if both Shawarma and Sandwich are normal goods. Now show what happens if Sandwich is an inferior good.
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 1PA
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Question
Suppose a student has monthly income of Rs 20,000. He consumes only two commodities
Sandwich and Shawarma. The cost of Sandwich is Rs 100 each, and the cost of Shawarma is
Rs 200 each.
a) Draw the student’s budget constraint. What is the slope of his budget constraint?
b) Suppose student gets a raise, so his income increases from Rs 20,000 to Rs 24,000. Show
what happens to consumer optimal consumption choice if both Sandwich and Shawarma
are normal goods. Now show what happens if Sandwich is an inferior good.
c) Suppose consumer income decreases to Rs. 16,000. Show what happens if both Shawarma
and Sandwich are normal goods. Now show what happens if Sandwich is an inferior good.
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