A consumer lives on a diet of solely steak and potatoes. Her budget is $30 for e
ID: 1145540 • Letter: A
Question
A consumer lives on a diet of solely steak and potatoes. Her budget is $30 for every 10 days and she must buy enough potatoes to eat at least 2 potatoes per day If a potato costs $0.50 and the price of a steak is $10. How much will the consumer purchase of each good? She will purchase potatoes She will purchase steak(s). Now suppose that the price of a potato increases to $1.00. How much will the consumer purchase of each good? She will purchase potatoes She will purchase steak(s). Now suppose that the price of a potato increases to $1.25. How much will the consumer purchase of each good? She will purchase potatoes She will purchase steak(s). What kind of a good is the potato? OA. Substitute good. O B. Required good. O C. Inferior good. 0 D. Giffen good. Would you expect the demand curve for potatoes to continue to follow this trend indefinitely? o A. Yes, as the price of potatoes continues to rise the impact on quantity will continue indefinitely. O B. No, as the price of potatoes continues to rise the quantity of potatoes purchased will start to fall. ° C. No, as the price of potatoes continues to rise the quantity of potatoes purchased will start to riseExplanation / Answer
Budget of the consumer is $30 for every 10 days.
Each day budget is $3.
Cost of potato-$.50
Cost of stake -$10
For 10 days, the consumer will purchase 2*10=20 POTATOES
Cost of 20 potatoes is 20*.50=10
She is thus left with 2 steaks to buy($10*2)
Thus she will buy 20 potatoes and and 2 steaks.
If the price of potato increases, she will still buy 20 potatoes with the total cost of $20. Thus she can afford only one steak with $10.
If price increases to $1.25, then also she will buy 20 or more potatoes with (minimum spending on potato is $25 or more) and will not buy any steak.
This potato is a giffen good where with the increase in price, the quantity demanded increases.
Yes, I would expect the demand curve to follow this trend(answer is option A)
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