ePack: Principles of Microeconomics 6th Edition by Gregory Mankiw

Exercise 1

Jennifer divides her income between coffee and croissants (both of which are normal goods). An early frost in Brazil causes a large increase in the price of coffee in the United States.
a. Show the effect of the frost on Jennifer's budget constraint.
b. Show the effect of the frost on Jennifer's optimal consumption bundle assuming that the substitution effect outweighs the income effect for croissants.
c. Show the effect of the frost on Jennifer's optimal consumption bundle assuming that the income effect outweighs the substitution effect for croissants.