Thousands of Britain’s ‘Fish and Chip’ Shops Could Close Within a Year

EconEye Admin

4 years ago

Customers expect fish and chips to be cheap. A year ago, the average price for a regular fish supper was £7. Now it’s £8.50—a 21% increase. Prices on average rose 7% in the last year.—CNN Business

Answer the following questions to check your understanding of the story.

Maggie buys fish suppers and other goods and services. Given the price changes in the news clip and no change in Maggie’s income, what do we know about Maggie’s budget line if she measures fish suppers on the x-axis?

a) The x-axis intercept decreases and the y-axis intercept increases, and the budget line becomes steeper.

b) The x-axis intercept decreases with no change in the y-axis intercept, and the budget line becomes steeper.

c) The x-axis intercept and the y-axis intercept increase, and the budget line becomes flatter.

d) The x-axis intercept and the y-axis intercept decrease, and the budget line becomes steeper.

The price of fish suppers rises so when Maggie buys only fish suppers, she can buy fewer than before the price rise. The price of other goods and services also rises so if Maggie buys only other goods and services, she can buy fewer than before the price rise. How do the intercepts of Maggie’s budget line change? The price of fish suppers rises by more than the price of other goods and services rises, so the relative price of fish suppers increases. What happens to the slope of Maggie’s budget line?

The price of fish suppers rises so when Maggie buys only fish suppers, she can buy fewer than before the price rise. The price of other goods and services also rises so if Maggie buys only other goods and services, she can buy fewer than before the price rise. The x-axis intercept and the y-axis intercept of her budget line decrease. The price of fish suppers rises by more than the price of other goods and services rises, so the relative price of fish suppers increases, and her budget line becomes steeper.

For Maggie, fish suppers are a normal good. When the price rises, how does her best affordable choice change?

a) Maggie moves to a lower indifference curve. The substitution effect re-enforces the income effect, and she buys fewer fish suppers.

b) Maggie moves to a lower indifference curve. She might buy more fish suppers or fewer fish suppers, but we don’t know for sure.

c) Maggie moves to a higher indifference curve. The substitution effect re-enforces the income effect, and she buys more fish suppers.

d) Maggie remains on the same indifference curve and doesn’t change the quantity of fish suppers she buys because the substitution effect cancels out the income effect.

If the price of a fish supper rises and we hypothetically increase Maggie’s income to keep her on the same indifference curve, is the substitution effect an increase or a decrease in the number of fish suppers she buys? If we decrease Maggie’s income back to its starting value, does Maggie move to a different indifference curve? Fish suppers are a normal good, so is the income effect an increase or a decrease in fish suppers?

If the price of a fish supper rises and we hypothetically increase Maggie’s income to keep her on the same indifference curve, her substitution effect is a decrease in the quantity of fish suppers she buys. If we then decrease her income back to its starting value, Maggie moves to a lower indifference curve and her income effect is a decrease in the quantity of fish suppers she buys because fish suppers are a normal good.

Share this: