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Please draw a graph and show the impact of an offer where a consumer is buying two goods X and Y, and is given an offer...

Please draw a graph and show the impact of an offer where a consumer is buying two goods X and Y, and is given an offer to buy one unit of X at the regular price and get the second unit of X at 50 percent off the regular price. Please explain the graph in detail.

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Answer #1

Consider the given problem here there are two goods “X” and “Y” and price for both goods are “1”, => the absolute slope of the budget line is “1/1=1”. Now, the initial budget line is “AB” and “E1” be the initial equilibrium, => the optimum consumption of “X” is “4”.

01 02 ------ E2B8 B9 3 i 5 i 7 B 9

Now, under the given off the price of “X” will decrease by “50%” for the even unit purchased, => the budget line will be step function, => for the odd quantity the slope is “1” and for the even quantity the slope is “1/2”. Here the budget line is given by, => “AB1B2…B9”. Now, given the utility function the new equilibrium is “E2”, => the consumption of “X” increases from “4” to “6”. So, under the given offer of good “X” the consumption of “X” increases and also become better off.

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