Suppose the only two goods you consume are X and Y. On Tuesday, the price of Y (not X!) goes up. On Wednesday, there are no new price changes, but your income rises by just enough so that you can exactly afford Monday's basket.
a. Use a diagram, with X on the horizontal axis and Y on the vertical, to illustrate your budget lines and optimum points on Monday, Tuesday, and Wednesday. Label the optimum points M, T, and W.
b. In terms of the locations of points M, T, and W, what would it mean for X to be an inferior good?
c. Is it true that W is always to the right of M? If so, how do you know? If not, what would your answer depend on?
d. Call X a Figgen good if it is true that "when the price of Y goes up, the quantity demanded of X goes up." In terms of points M, T, and W, what would it mean for X to be a Figgen good?
e. True or False: Every inferior good is a Figgen good.
f. True or False: Every Giffen good is a Figgen good.