Question: In the accompanying diagram, let pizza and calzones be perfect substitutes. The initial optimal equilibrium, given the budget constraint BC1, occurs at A. A

In the accompanying diagram, let pizza and calzones be perfect substitutes. The

c. Now, suppose pizza and calzones are perfect complements. The initial optimal equilibrium, as above, occurs at A. A decreas

e. Now, let pizza and calzones be substitutes or complements but not perfect substitutes or perfect complements. As above, th

In the accompanying diagram, let pizza and calzones be perfect substitutes. The initial optimal equilibrium, given the budget constraint BC1, occurs at A. A decrease in the price of calzones causes the budget constraint to rotate from BC to BC2, reaching the higher utility curve U2, where optimal consumption occurs at B. 20 19 18 17 16 15 14 Move the hypothetical budget line BC" to its correct position 13 12 to show the substitution effect. 11 10 4. BC 0123 4567a9 10 11 12 13 14 15 16 17 18 19 20 Calzones b. The change in quantity of calzones demanded caused by the price change is c. Now, suppose pizza and calzones are perfect complements. The initial optimal equilibrium, as above, occurs at A. A decrease in the price of calzones causes the budget constraint to rotate from BC, to BC,, reaching the higher utility curve Uz, where optimal consumption is now 20 19 18 17 16 B. 15 14 Move the hypothetical budget line BC' to its correct position 13 12 to show the substitution effect. 11 10 4. 2. 1. NC 012346 678 0 10 11 1213 14 15 16 17 18 19 20 Calzones d. The change in quantity of calzones demanded caused by the price change is Pizza e. Now, let pizza and calzones be substitutes or complements but not perfect substitutes or perfect complements. As above, the initial optimum is at A. A decrease in the price of 20 19 calzones causes the budget constraint to rotate from BC, to BC2, reaching the higher utility curve U2, where optimal consumption is now B. 18 BC 17 16 15 14 As before, move the hypothetical budget line BC' to its correct position to show the substitution effect. 13 12 11 10 7. BC BC 0123 456789 10 11 12 13 14 15 16 17 18 19 20 Calzones L. The change in quantity of calzones demanded caused by the price change is

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