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Suppose we have 2 goods, x1 and x2, with respective prices pl and p2. Sam has income I. Sam's demand function for good x1 is given by: a1 (pr, 2, T) = —pal +pi a) Given the above demand function, graphically depict how we would derive Sam's Engel Curve from the Income Offer Curve (Just give a rough sketch like the ones done in the lecture notes). b) Are goods x1 and x2 substitute goods? Explain. ¢) Now suppose p2 = 5 and M = 10. There are 20 consumers in the market and all con- sumers' have identical demand functions. What is the market demand function. d) Find the price elasticity of market demand if p; = 3. e) Given the price elasticity of demand you caleulated in last part, is good 1 a giffen good? Explain.
 

Suppose we have 2 goods, x1 and x2, with respective prices pl and p2. Sam has income I. Sam's demand function for good x1 is given by: x (P, P2, 1) = -PI + p a) Given the above demand function, graphically depict how we would derive Sam's Engel Curve from the Income Offer Curve (Just give a rough sketch like the ones done in the lecture notes). b) Are goods x1 and x2 substitute goods? Explain. c) Now suppose p2 = 5 and M = 10. There are 20 consumers in the market and all con- sumers' have identical demand functions. What is the market demand function. d) Find the price elasticity of market demand if p = 3. 2 e) Given the price elasticity of demand you calculated in last part, is good 1 a giffen good? Explain.