In order to identify a consumer's demand curve from an optimal choice diagram we:
A)change the consumer's income, holding the prices of both goods constant, and identify the baskets the consumer chooses with each income level.
B)change the price's of both goods, holding income constant, and identify the baskets the consumer chooses with each price level.
C)change the price of one good, holding income and the price of the other good constant, and identify the baskets the consumer chooses with each price level.
D)change the price of one good and then change the income level so that the consumer achieves the same level of utility as before the price change and then identify the optimal consumption baskets at each price level.

Question

Quizplus · Accepted Answer

To identify a consumer's demand curve, we need to change the price of one good (independent variable) while holding the price of the other good and the consumer's income constant. This will allow us to observe how the consumer adjusts their consumption of the two goods in response to the price change, and we can identify the optimal basket of goods chosen by the consumer at each price level. By plotting these baskets on a graph, we can construct the consumer's demand curve for the good whose price has changed. To identify the consumer's demand curve, we need to change the price of one good while holding the price of the other good constant. Then, we need to identify the optimal consumption basket at each price level. This will give us the consumer's demand for that particular good at each price level, which can be used to plot the demand curve. Changing the income level or both prices at the same time will not give us the same level of information about the consumer's demand for a particular good at different price levels.

In Order to Identify a Consumer's Demand Curve from an Optimal