macroeconomic analyze

macroeconomic analyze

only one question

.Suppose Jim considers orange and apple to be perfect two-for-three substitutes and spends $60 income only on these two goods. Orange costs $4/lb, while apple costs $2/lb. Find Jim’s optimal consumption bundle. What will be the income and substitution effects of an increase in the price of apple to $4/lb? What will be Jim’s optimal consumption bundle after the increase in the price of apple to $4/lb?

Solution Preview

Macroeconomics
Q1

Consumption Bundle Oranges Apples
A 0 10
B 1 8
C 2 6
D 3 4
E 4 2
F 5 0

Income = $60
Oranges = O
Apples = A
Perfect two for three substitutes is denoted by

(173 words)