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3. Asslnne Dizzy)r buys a Good X and a composite conmlodity Z. His income is 8120. the price of Z is $1 and the price

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3. Asslnne Dizzy)r buys a Good X and a composite conmlodity Z. His income is 8120. 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. a. Now assume the price of X falls to 32. Assuming X is a Gi'en 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 eects on the graph. Be sure to explain whether each effect (income and substitution) is to the right or le with its relative magnitude. Z b. Based on the information above. derive Dizzy's ordinary demand (do) and compensated demand (dc) curves for X on the graph below. [Label each axis carefully.) (Note that a compenscued demand cun'e ignores the income eeci ofa price change. I! onir measures the substitution eeci winie an ordinary demand cun'e measures the totai aeci. J

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