Suppose thatBC

1

BC1on the following graph represents your initial budget constraint for good X and good Y, and point A represents the best bundle, given this choice set. After a change in the price of good X, your new budget constraint is nowBC

2

BC2. The compensated budget is parallel toBC

2

BC2, representing the same tradeoff between good X and good Y, and it is tangent to the given indifference curve (IC) at point B.

If point C represents the new best bundle, what kind of good is good X?

a. Giffen good

b. Normal good

c. Inferior good, but not a Giffen good

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