An individual sets aside a certain amount of her income per

An individual sets aside a certain amount of her income per month to spend on doctor visits and health food. Given the information below, illustrate both the price-offer curve associated with changes in the price of doctor visits and the demand curve for doctor visits.

Solution

Offers are: i. 7/8=0.875

ii. 5/9=0.555

iii. 4/9=0.444

iv. 2/11=0.181

Hence, the offer curve is backward bending. Offer curve shows the offers between consumption level of two goods. Here it is (quantity doctor visit/quantity health food) where price of doctor visit falls, money income and price of food remaining constant. If we see price consumption curve it is downwards sloping as rise in price of doctor visit will make food consumption cheaper and thus, doctor visit will be substituted by food consumption. Hence, inward shifted budget line will make an equilibrium with an leftward shifted IC and by joining equilibrium points we get downwards sloping price consumption curve.