Course: Microeconomic - Consumer Theory

Model, explain and analyze in detail, based on consumer theory, how an individual responds to a change in the price of a good in his or her basket (income and substitution effect). a) Considering 2 goods (potatoes and meat) explain how they are related. Analyze the total effect of a decrease in the price of the first good. b) Analyze the income and substitution effect if potatoes are an inferior good. Attach the graphs in each case.