Question: Price of good X is $10 each and price of good Y is $4 each. Panel (a) in the figure shows a new budget line BC2 when the price of good X falls to $5 each. Your indifference curve U1 is tangent to BC1 at point A, and tangent to at point . The new budget lineBC2 is parallel to the dotted budget line . Draw large and clear figures for each case-

5. e) Notice that point B in panel (b) is carefully chosen on the new budget line BC2 so that good X can be proven to be a normal good that is a necessity. Prove that Y is a necessity good.

6. f) Reproduce the figure in panel (a) and draw therein a new indifference curve U2tangent to the new budget line BC2 so that good X can be shown to be a normal good that is a luxury. Prove that good X in this case is a luxury good.

7. g) Reproduce the figure in panel (a) and draw therein a new indifference curve U2tangent to the new budget line BC2 so that good X can be shown to be a good that is inferior but not a Giffen. Explain how the good X in this case is an inferior good but not a Giffen.

8. h) Reproduce the figure in panel (a) and draw therein a new indifference curve U2tangent to the new budget line BC2 so that good X can be shown to be an inferior good that is a Giffen. Explain how the good X in this case is a Giffen good.

9. i) What is the range for the quantity of good X at the tangency of the new indifference curve and the new budget line for the good X to be considered i) a luxury, ii) a necessity, iii) a Giffen, iv) a non-Giffen inferior good?