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2. Assume Dizzy buys a Good X and a composite commodity Z. His income is $120. the price of Z is $1 and the price
2. Assume Dizzy buys a Good X and a composite commodity Z. His income is $120. the price of Z is $1 and the price of X is $4. Draw and label Dizzy's budget line and his utility maximizing indifference elm-e with consumption of X = 12. Now assume the price of X falls to 82. Assuming X is inferior (but not a Giffen good). draw in and label the income and substitution effects that determine the change in the quantity demanded of X given this decrease in the price. Note the income and substitution effects on the graph. Be sure to explain whether each eect (income and substitution) is to the right or left with its relative magnitude. Z b. Based on the infonnation above. derive Dim-\"s ordinary demand (do) and compensated demand (dc) curves for X on the graph below. [Label each axis carellly.) Which one is atter? (Note that a compensated demand curre ignores the income e'ect thipriee change. It onij' measures- the substitution eeet tritiie on ordintujr demand curve measures the totmF effect.)
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