QUESTION 4 (10 points) When we change the price of a good, the total effect (TE) in quantity demanded is caused by two separate effects, the substitution effect (SE) and income effect (IE). Therefore, we have: TE = SE + IE A. Explain with your own words what the SE and IE are. B. Draw two stacked graphs showing the change in the optimal consumption bundle, and the SE and IE for a normal good x when its price decreases from px to P, ". On the top graph, put good x on the horizontal axis and good y on the vertical axis, and on the bottom graph, draw the demand curve for good x, with the price on the vertical axis and quantity on the horizontal axis. C. What would change if x were an inferior good? QUESTION 5 (10 points) Every Spring, John goes to a local co-op to buy seeds to plant in his field. He has keeping track of prices of seeds and the number of tons of seeds that he buys each year and estimates his demand curve to be p(q) = 300 = 10q. Last year, he paid $150 per ton of seed but this year the price is $100. Calculate his welfare improvement by measuring the change in John's consumer surplus (CS)