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5. Assume Dizzy buys a Good X and a composite conmlodity Z. His income is 5120. the price of Z is $1 and the price
5. Assume Dizzy buys a Good X and a composite conmlodity Z. His income is 5120. 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 cui've with consumption of X = 12. a. Now assume the price of X rises to $6. 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 increase in the price. Note the income and substitution effects on the graph. Be sm'e to explain whether each effect (income and substitution)- is to the right or left with its relative magnitude. Z X b. Based on the information above. den've Dizzy's ordinary demand (do) and compensated demand (dc) curves for X on the graph below. (Label each axis carefully.) Winch one is flatter"? (Note that a conniensateri demand curve ignores the income effect ofapriee change. it onij.' measures the substitution eect iriiiie an ortiinan' demand curve measures the totai effect.)
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