Micro economics Utility Maximization, Income and Substitution Effects
Kevin_7020
- Assume you get utility from soda and some composite good.
- Using indifference curve analysis, derive a demand curve for a representative consumer of soda when the price of soda increases. Be creative and make up numbers for the price of soda and the utility maximization quantities.
- Using a new indifference curve graphical analysis, describe the income and substitution effects associated with the price increase. Use the quantities you made up in part a to show the initial utility max position and the final utility max position.
- Using the demand curve derived in part a, illustrate, and explain what happens to consumer surplus when the price of soda increases. Explain the significance and rationale behind this change.
5 years ago
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