Grant has $200 to spend each month on restaurant meals and jazz performances at his
neighborhood jazz club. The price of a typical restaurant meal is $20 and the price of a jazz performance ticket is $10.
Grant is maximizing his utility by consuming 6 restaurant meals and attending 8 jazz performances. Suppose Grant still has $200 to spend, but the price of restaurant meal rises to $25, while the price of jazz performance ticket drops to $8. Can it be determined if Grant is better off or worse off than he was before the price change? Use a budget constraint/indifference curve graph to illustrate your answer.
Initially, when the price of a typical restaurant meal is $20 and the price of a jazz performance ticket is $10, Grant consumes the bundle "A" on BC1. Following the price changes, Grant's new budget line is BC2. He is no longer able to afford this same bundle "A" as shown in the figure below, but without having information to plot his new indifference curve, it is uncertain whether he is better off or worse off than he was before the price change.
You might also like to view...
The long-run average cost curve may initially slope downward due to
A) decreasing average fixed costs. B) increasing marginal returns. C) economies of scale. D) All of the above.
Suppose that the citizens of South Dakota decided to limit imports of citrus fruit from Florida and California on the grounds that climatic differences give those two states an unfair advantage in the production of those products. How would the analysis used to explain international trade apply?
If policymakers cut taxes because they perceive that recession is a major threat, a proponent of the new classical view will be most likely to argue that the tax cut is
a. highly appropriate because it will stimulate aggregate demand and, thereby, help to strengthen the economy. b. highly inappropriate because it will exert a restrictive impact on aggregate demand, output, and employment. c. not very important because the "demand stimulus effects" of the tax cut will be largely offset by additional borrowing and higher interest rates. d. not very important because the "demand stimulus effects" of lower current taxes will be largely offset by the expectation of higher taxes in the future.
The fact that a society's production possibilities curve is bowed out from the origin of a graph demonstrates the law of:
A) increasing opportunity cost. B) decreasing opportunity cost. C) constant opportunity cost. D) convex opportunity cost.