Homework Answers
(a) normal goods
price of x2
increase so the budget line pivot in form p.Total effect Ea to Eb.
SE is Ea to Ec Remaining Ec to Eb is ie.
(b)
Total effect Ea to Eb SE is Ea
to Ec.ie is Ec to Eb.As it is inferior good so income and quantity
demand inversely related.as real income fall by increasing price of
x2 so quantity demand of x2 has
increased.
(c)
Here price
rise,x2 demand increase SE is from Eb to Ea and ie
to from Ea to Ec.
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