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Question: alex and becky fogarcy lve in dallas and enjoy going...

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Alex and Becky Fogarcy lve in Dallas and enjoy going out to Tancy restaurants for dinner and to diners for breakiast.On tne Tollowing dlagram, the purple curves Ii and I2 represent two of their indifference curves for fancy dinners and diner breakfasts. They have $800 per month available to spend on eating out. The price of a diner breakfast is always $10. Each labeled point represents the tangency between a budget constraint and the corresponding indifference curve 48 40 26 BC 10 FANCY DINNERSThe initial budget constraint (BCi) shows the Fogartys budget constraint when the price of a fancy dinner is $160. At this price, Alex and Becky would choose to consume two fancy dinners. Suppose that the price of a fancy dinner decreases to $40, shifting their budget constraint to BC2, which represents a new relative price of four diner breakfasts per fancy dinner. (Hint: The blue line labeled H is parallel to BC2 and tangent to Ii at point B.) In order to remain as happy as they were before the price decrease-that is, to consume at some point on the same indifference curve as they were on initially (Ii)-the Fogartys income spent on fancy dinners and breakfast at diners would now only have to be than maintaining their original level of utility, the Fogartys choose the optimal bundle along their new budget constraint. At this point, they are However, in reality, rather off than before the price change in fancy dinners. On the following table, indicate which point movement represents the substitution effect and income effect for fancy dinners when the price decreases from $160 to $40. Then indicate if each effect is positive or negative in this case Consumption Change Fancy Dinners Represented By. (Quantity of fancy dinners) Positive or Negative Substitution Effect Income Effect In this case, the price decrease of fancy dinners causes the Fogartyss real income to income and the direction of the income effect, fancy dinners are Because of the change to Alex and Beckys real for the Fogartys.

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