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Panagiotis consumes two goods which are perfect substitutes, the and the .A is as good as a .The price of is 4 and the price

Panagiotis consumes two goods which are perfect substitutes, the and the

.A is as good as a .The price of is 4 and the price of is 5.

a)If his price drops to 3, will Panagiotis buy more ?Is this change, if there is a change, due to what result?

b)If Panagiotis faces prices d = 4 and h = 5 and his income is 120 , draw in blue the income restriction curve and draw in red the highest possible indifference curve and note the excellent combination with .

c)If Panagiotis faces prices d = 4 and h = 3 and his income is 120 , draw in black the income restriction curve and draw in red the highest possible indifference curve and note the excellent combination with B.

d)How much should Panagiotis's income be after the price change so that he can consume his original combination?

e)When the price changes what is the substitution effect, what is the income effect and what is the overall result?

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