Question

Using the model I have provided below: a. Draw a new budget constraint that reflects the change in price of gasoline from the previous example. Note that I will not be looking for an exact change in the budget constraint, but the direction that you move the budget constraint and with a rationale for the movement. b. Place a new indifference curve in the model to show a new equilibrium for the consumer or a point on the budget constraint that maximizes the utility of the consumer after the price change. Note that I will not be looking for an exact change in the indifference curve, but the direction that you move the indifference curve and with a rationale for the movement. c. Explain why the new combination of gasoline and movie tickets, please identify with a point labeled β, maximizes utility compared to the previous point α which represented the maximum utility that the consumer could receive prior to the change in the price of gasoline. d. Are the changes in the quantities of gallons of gasoline and movie tickets the same as predicted by the utility model in part 1? Explain. e. Does the consumer experience greater satisfaction after the reduction in the price of gasoline? Explain or prove this using the indifference curve/budget constraint model.

Answer 1