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1) Question 1 (10 Total Marks) Income and Substitution Effect of a Price Change Y 1/Py UL Uo 1/Pxo I/PXI X In the above diagram,
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Question 1 (10 Total Marks) Income and Substitution Effect of a Price Change Y 1/Py UL Uo 1/Pxo I/PXI X In the above diagram, initially Px=Pxo, and the consumer is in equilibrium at E. Suppose Px falls from Pxo to PX1. If gg' is the artificial budget line created using Hick's method of decomposition: 1) What is the pure Substitution Effect? (Select one from below.) (1 mark) a) E to F b) F to E c) F to G d) G to F e) E to G f) G to E2) TWhat is the Income Effect? (Select one from below.) [1 mark) a) E to F b} F m E c} F to G d) o [a F e) E m E. f) C. to E 3) Are good X and good '1' substitutes, or complements and why? (2 marks] 4) Is good X normal, or inferior and why? [2 marks) What about in die diagram below? Again, the consumer is in equilibrium at E and, again, Px falls from Pin: to Pin. Y IxPy _ 1 x IIPXn \"em 5) In [his case, are good X and good Y substitutes or complements, and why? [2 marks) 5) In [his case is, good X normal or inferior, and why? (2 marks]Step by Step Solution
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