Yvonne eats breakfast in the morning. She can choose between bagels (B) or coffee (C) (or...

 

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Yvonne eats breakfast in the morning. She can choose between bagels (B) or coffee (C) (or some combination of the two). Initially, when bagels cost $4 and coffee costs $2, she maximizes her utility by buying 5 bagels and 20 cups of coffee. Today, she discovers that the price of bagels has changed. As a result: • For bagels, the substitution effect is -0.69 and the income effect is -0.31. • For coffee, the substitution effect is +1.54 and the income effect is -1.54. Part a) (1 point) How many bagels and cups of coffee will Yvonne purchase now, given the new bagel price? You should either show some simple calculations, OR use 1-2 sentences to explain how you arrived at your numerical answer. Part b) (2 points) How much income does Yvonne allocate to buying bagels and coffee? How much do bagels cost today? Part c) (2 points) What type of goods (normal, inferior, Giffen) are bagels and coffee? To receive full marks, you must use 1-2 sentences to explain how you arrived at your answer. Part d) (2 points) Are bagels and coffee substitutes, complements, or unrelated? To receive full marks, you must use 1-2 sentences to explain how you arrived at your answer. Yvonne eats breakfast in the morning. She can choose between bagels (B) or coffee (C) (or some combination of the two). Initially, when bagels cost $4 and coffee costs $2, she maximizes her utility by buying 5 bagels and 20 cups of coffee. Today, she discovers that the price of bagels has changed. As a result: • For bagels, the substitution effect is -0.69 and the income effect is -0.31. • For coffee, the substitution effect is +1.54 and the income effect is -1.54. Part a) (1 point) How many bagels and cups of coffee will Yvonne purchase now, given the new bagel price? You should either show some simple calculations, OR use 1-2 sentences to explain how you arrived at your numerical answer. Part b) (2 points) How much income does Yvonne allocate to buying bagels and coffee? How much do bagels cost today? Part c) (2 points) What type of goods (normal, inferior, Giffen) are bagels and coffee? To receive full marks, you must use 1-2 sentences to explain how you arrived at your answer. Part d) (2 points) Are bagels and coffee substitutes, complements, or unrelated? To receive full marks, you must use 1-2 sentences to explain how you arrived at your answer.

Answer rating: 100% (QA)

a at new prices for Bagels B TE IE SE 3169 1 So B2 51 4 For Coffee C TE SEIE 154154 ... View the full answer