1.4 Suppose the price of X is $5 and the price of Y is $10 and a...

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1.4 Suppose the price of X is $5 and the price of Y is $10 and a hypothetical household has $500 to spend per month on goods X and Y.

a. Sketch the household budget constraint.

b. Assume that the household splits its income equally between X and Y. Show where the household ends up on the budget constraint

c. Suppose the household income doubles to $1,000. Sketch the new budget constraint facing the household.

d. Suppose after the change the household spends $200 on Y and $800 on X. Does this imply that X is a normal or an inferior good? What about Y?

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