(1 ,2) = (2 , 2) and he chooses:(1 ,2) = (1 , 3) andm = 8

Draw a diagram to illustrate theSlutsky decompositionfor the case of anincreasein1, with money incomeand2fixed.

1 ,2are both ordinary goods;1is inferior and2is normal.

1 increases from 2 to 2.5

In your diagram, clearly indicate:

• Therotation/shiftsof the budget line
• The optimal bundlebefore the price change(Point A)
• The optimal bundle after accounting for only thesubstitution effect(Point B)
• The optimal bundle after accounting for also theincome effect(Point C),
• The relevantindifference curves.

this is for microeconomics.../