Joe's income consumption curve for tea is a vertical line on an optimal choice diagram, with tea
Question:
a) Show that Joe's demand curve for tea must be downward sloping.
b) When the price of tea drops from $9 to $8 per pound, the change in Joe's consumer surplus (i.e., the change in the area under the demand curve) is $30 per month. Would you expect the compensating variation and the equivalent variation resulting from the price decrease to be near $30? Explain.
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