Question

Suppose that with a budget of $100, Deborah spends $60 on sushi and $40 on bagels when sushi costs $2 per piece and bagels cost $2 per bagel. But then, after the price of bagels falls to $1 per bagel, she spends $50 on sushi and $50 on bagels Instructions: Enter your answers as whole numbers. a. How many pieces of sushi and how many bagels did Deborah consume before the price change? Pieces of sushi Bagels L b. At the new prices, how much money would it have cost Deborah to buy those same quantities (the ones that she consumed before the price change)? c. Given that it used to take Deborah's entire $100 to buy those quantities, how big is the income effect caused by the reduction in the price of bagels?

Answer 1

Given data Budaat - 100, Debaran Spence = 60. on Soshi . 40 an be gels when soshi Costs a per piece. Bagels cost After he sho -2 pe bagel. price of bage is falls to ipa bages. spend so on Sushi and so on bagels. las Before prece of the price change. sushi a so z that deborah can buy 30 unit place of bagels - that deborah can boy. no . I = 200nits we get quantity of Sushi and bi at new price from above bages. she will she will to boy the spend spend same 20x1 = 20 on bogels. 30x20=60 on sushi. quantity the amount of

total amount spent will be Got 20 a so to consome old quantity is Income Effect given budget 3 100 Income Effect a 100-80. > 20