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Rick purchases two goods, food and clothing. He has a diminishing marginal rate of substitution of food for clothing. Let x denote the amount of
Rick 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 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 for each of the following two cases: a) Case 1: Food is a normal good. (15 points) b) Case 2: Food is an inferior good but not a Giffen good. (15 points)
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