Illustrated for each. However, if the consumer spent

Illustrated
from the figure above, if the beginning equilibrium is at point A, when then
price of a book (X) falls to P^1x, the consumers
opportunity set expands. With the new opportunity set, the consumer can attain
a greater satisfactory level at point B. This can be seen from the movement of
point A to point B into a new equilibrium.

 

Good
X (Books) and Y (Other goods) are known as substitute goods. This implies that
an increase in the price of Books leads to an increase in consumption of other
goods vice versa. Since Books and Other goods are substitutes, a 40% discount
on the price of Books (X) will cause the consumer to move from point A to point
B, whereby there are less Y consumed. (Y0 reduced to Y1).

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To conclude,
this change in price of good, in this case, the 40% discount on any book, has
expanded the consumers opportunity set and increase his satisfactory level.

 

 

 

a.    With reference to figure 15, when the consumer
receives the “buy one get one free” offer, the budget line will become ADEF. If
the consumer buys less than Book B, there are no deal to be acquired, and the
budget line to the left of one book remains without change, as can be seen as
point AD. However, if the consumer purchases Book B, he receives another Book
for free. In this case, the budget line becomes DEF the moment the consumer
purchases one Book. This can also be explained as: the price of a book A is zero
for units between one and two Book B. This signifies that the budget line for a
book is horizontal between one and two units. The consumer wanting to buy more
than two Book B will mean that he requires a full payment for each. However, if
the consumer spent all his 100£ on books, he could buy an additional book than
he could before since one book will be given free. Therefore, for books in
excess of two units, the budget constraint is the line connecting points E and
F.

 

This
concludes that after the offer is given, the opportunity set increases, making
bundle E more affordable. Additionally, it is illustrated that bundle E is now
preferred to bundle C, leading the consumer’s optimal choice into consuming
bundle E as can be seen from figure 15.

In
conclusion, this sales technique has led to the consumer purchasing more book
than he would have otherwise.

 

b.    From the given situation of the book store, it
seems as the manager earns solely from the output of the store. In that case,
it is right for the manager to fire the latest worker. 

x

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