Question
2.(20 points) Suppose the budget line changes so that the same consumer achieves a new equilibrium at Point B. A.What is the new price of
2.(20 points) Suppose the budget line changes so that the same consumer achieves a new equilibrium at Point B.
A.What is the new price of Product Y?
B.At point B, how many units of Product X does the consumer purchase?
C.Comparing the number of units of Product X at point B compared to point A, what is the relationship between
products X and Y?Are they complements, substitutes or neutral goods?
D.Explain whether the consumer is better off or worse off as a result of the price change.You must clearly state that the consumer is either "better off" or "worse off" in your answer.
E.The income effect and substitution effect operate in opposite directions with respect to the amount of product X that is purchased.Does the Substitution Effect increase or decrease the amount of Product X to be purchased?Does the Income Effect increase or decrease the amount of Product X to be purchased?
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