Monica eats chips and crackers. Her income is $20, and the prices of chips and crackers are $1 and $2 per bag, respectively. At these prices, she eats 16 bags of chips and 2bags of crackers (point A). When the price of crackers falls to $1, Monica consumes 8 bags of chips and 12 bags of crackers (point B).

1.Why does the budget constraint rotate?

2.Label your own diagram and estimate the income and substitution effects for crackers. Which is larger?

3.Are crackers a normal or inferior good? Chips?