3. A consumer buys food and drink.

As shown in the diagram below, the consumer

experiences an increase in the price of food, shifting his budget line from BC

to BC

.

0

1

The consumer's income is 200. The optimal bundle on each budget line is shown.

(a) What is the price of food on BC

?

0

(b) What is the price of food on BC

?

1

(c) The

total effect

of the increase in price is a decline of

units of food purchased.

(d) The

substitution effect

of the increase in price is a decline of

units of food

purchased.

(e) The

income effect

of the increase in food price is a decline of

units of food

purchased.

(f) Is food a normal good or an inferior good? Which budget lines did you compare?

(g) Is food a Giffen good? Which budget lines did you compare?