Answer to Question #59347 in Economics of Enterprise for kerry
1. A consumer splits their income equally between two goods. If the price of one good increases by 10% and their income increases by 5%, show that the consumer’s optimal consumption bundle will change despite them being able to afford their original bundle.
2. When estimating a demand function, explain why fitting a line of best fit through observed price and quantity combinations over time is not likely to yield good estimates.
however i cant seem to understand how to draw the graphs and explain them. so i will like to get the graphs for the first question with explainations which is 2 equilibrium graphs and the goodsX AND Y have to be normal and substitutes showing the old and new position of the graph after the income increase and price increase and the second question a basic demand curve but as a scatter graph. thanks
2) Demand curve represents the relationship between the quantity of a product demanded and its price. It is usually downward-sloping. For a given product, a demand curve may be estimated by first conducting a survey and then performing a regression analysis.
A line of best fit is a straight line that best represents the data on a scatter plot may pass through some of the points, none of the points, or all of the points. As it is a straight line it gives only average estimates, so this method is not very correct for estimation of a demand function.
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