Question

In: Economics

Jill consumes Ramen noodles and all else. Assume Jill considers Ramen noodles an inferior good.


 Jill consumes Ramen noodles and all else. Assume Jill considers Ramen noodles an inferior good.
⦁   Using the utility-maximization model, graphically show the effect of an income increase on Jill’s consumption of Ramen noodles.

⦁   On a separate graph from (a), graphically show the effect of two price increases on Jill’s consumption of Ramen noodles

⦁   Based on (b), derive Jill’s demand for Ramen noodles using the supply-and-demand model.
⦁   Draw an Engel curve for a good that is inferior at low levels of income and normal at high levels of income

Solutions

Expert Solution

SOLUTION. (Jill consumes Ramen noodles)

A) Income elasticity of Ramen noodles ( inferior good) is negative . As income of Jill increases , consumption of ramen noodles will increase and as income of Jill falls. consumption of ramen noodles will decrease. Income consumption curve of negatively sloping curve. Suppose income of Jill of is M1 and Jill consumes Q1 quantity of ramen noodles If income falls to M2 , consumption of ramen noodles increases

graphically representation of the effect of an income increase on Jill’s consumption of Ramen noodles

B) Demand curve of ramen noodles is negatively sloped. As price of ramen noodles rises to P1, quantity demanded on ramen noodles will decreases to Q1 ,as price of ramen noodles again increases to P2 ,quantity demanded on ramen noodles will decrease

graphically representation of the effect of two price increases on Jill’s consumption of Ramen noodles.

C) Jill’s demand for Ramen noodles using the supply-and-demand model.

C. As price of ramen noodles increases to P1 ,quantity demanded on ramen noodles will reduce to Qd1 and quantity supplied of ramen noodles increases to Qs1 d.Engel curve of of ramen noodles is negatively sloping curve.Engel curve shows the locus of combination of quantity purchase of a product a various income level. At normal level of income M1 ,Jill purchases Q1 quantity of ramen noodles .At higher level of income M2 of Jill purchases Q2 amount of ramen noodles

D). ANGLE CURVES


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