profileKevin_7020

 

  1. Assume you get utility from soda and some composite good.
  2. Using indifference curve analysis, derive a demand curve for a representative consumer of soda when the price of soda increases. Be creative and make up numbers for the price of soda and the utility maximization quantities.
  3. Using a new indifference curve graphical analysis, describe the income and substitution effects associated with the price increase. Use the quantities you made up in part a to show the initial utility max position and the final utility max position.
  4. Using the demand curve derived in part a, illustrate, and explain what happens to consumer surplus when the price of soda increases. Explain the significance and rationale behind this change.