Question
. Maria purchases two goods, food and clothing. She has a diminishing marginal rate of substitution of food for clothing. Let x denote the amount
. Maria purchases two goods, food and clothing. She has a diminishing marginal rate of substitution of food for clothing. Let x denote the amount of food consumed and y the amount of clothing. Suppose the price of food decreases from Px1 to Px2. On a clearly labeled graph, illustrate the income and substitution effects of the price change on the consumption of food. Do so for each of the following cases:
a) Case 1: Food is a normal good.
b) Case 2: The income elasticity of demand for food is zero.
Tom purchases two goods, food and clothing. He has a diminishing marginal rate of substitution of food for clothing. Let x denote the amount of food consumed and y the amount of clothing. Suppose the price of food increases from Px1 to Px2. On a clearly labeled graph, illustrate the income and substitution effects of the price change on the consumption of food. Do so for each of the following cases:
a) Case 3: Food is an inferior good, but not a Giffen good.
b) Case 4: Food is a Giffen good.
there are no numbers to these questions which is also where most of my confusion is.
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