Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 21 - Part VII - The Theory of Consumer Choice - Problems and Applications - Page 459: 7

Answer

a) Please see the first graph. b) Please see the second graph. c) The number of Cups O' Soup increased. d) Please see the third graph.

Work Step by Step

a) The optimum point A is five dining hall meals and 20 Cups O' Soup. b) The new optimum point B is three dining hall meals and 21 Cups O' Soup. c) Since the price of Cup O' Soup increased, the quantity purchased increased. That means the Cup O' Soup is an inferior good. Additionally, this inferior good has a larger effect on income than the effect from substituting from dining hall meals to Cup O' Soup. d) The demand curve is created. Since the demand increased as the price increased, Cup O' Soup is a Giffen (or inferior) good.
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