Assume That a Consumer Faces the Budget Constraints Shown

question 88

Essay

Assume that a consumer faces the budget constraints shown.

a. Assuming that income is the same on both occasions, describe the difference in relative prices between panel a and panel b.
b. If income in panel b is $320, what is the price of good X?
c. If income in panel a is $175, what is the price of good Y?
d. Give an example of prices that may produce the graphs in panel A and panel B (hint: what are the relative prices?)

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Definitions:

Stimulus

A thing or event that evokes a specific functional reaction in an organ or tissue.

Specificity Theory

A theory that proposes different sensory receptors are responsible for perceiving different types of stimuli, leading to specific sensations.

Sugar

A sweet-flavored substance derived from various plants, primarily sugar cane and sugar beet, used as a sweetener in foods and drinks.

Vinegar

A sour liquid formed by the fermentation of alcohol with acetic acid bacteria, used as a condiment and for preservation.