This assignment is based on the two videos posted on Canvas under Module 4 (Consumerâ€™s budget constraint and indifference curves & The substitution and Income Effects). Assume that a consumer consumes two goods, movies and soda, and assume that these goods are normal goods. Show graphically using budget constraints and indifference curves
- how the decrease in the price of movies changes the quantity demanded for both sodas and movies (the price effect) (max. 1 point)
- how we can isolate the substitution effect for movies and soda, and whether the substitution effect increases or decreases the quantity consumed for each good (max. 1.5 points)
- how we can isolate the income effect for movies and soda, and whether the income effect increases or decreases the quantity consumed for each good. (max. 1.5 points)
Put movies in the x-axis and soda in the y-axis and label everything in your diagram.
Provide feedback on someone elseâ€™s reply. (max 1 point)
You may use whichever tool you want to draw your diagram(s) (DrawIO or another online graphing tool, Word, Excel or, paper and pencil), but you must include your diagrams to your reply.
Here are instructions how to embed you DrawIO diagram into Canvas: DrawIO info for Canvas (Links to an external site.) and Additional DrawIO info (Links to an external site.).