Question

Maira divides her income between coffee and Chicken roll. A spread of bird flue in Pakistan
causes a large decrease in the price of chicken roll in Karachi. [Note: take coffee on y-axis
and roll on x-axis; No detailed explaination is needed]
a. Show the effect of the bird flue on Maira’s optimal consumption bundle assuming that
the substitution effect outweighs the income effect.
b. Show the effect of the bird flue on Maira’s optimal consumption bundle assuming that
the income effect outweighs the substitution effect.

Answer 1