Question

Show the effect of pandemic an piyush optimal consumption Bundy assuming that substitution effects outweighs the income effects for book

Answer 1

Piyush budget constraint before pandemic was:

$(PF1×QF)+(PB×QB)=$

$Y(PF1×QF1)+(PB×QB)=Y$

Where:

PF=price of food.

QB= quantity of books.

QF= quantity of food.

PB= Price of books.

Substitution effect will increase the quantity demanded for books from QB to QB1 thus the new budget constraint will be as follows:

$(PF1×QF1)+(PB×QB1)=$

$Y(PF1×QF1)+(QB1×QB)=Y$