Homework Answers
(E): Demand for Normal good rises as income rises whereas demand for inferior good falls as income rises.
To determine whether the good is normal or inferior, we need to find demand for X:
MRS = Price ratio
This gives: x = 2y -------------------------- (1)
Using (1) in budget, we get:
10x + 20y = 400 = M = income
Dividing budget equation by 10, we get:
x + 2y = M / 10
Using (1): 2y + 2y = M / 10
y = M / 40
x = 2(y) = M / 20
Since x is increasing in M(income), we can conclude that good x is a normal good.
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only question that is problem is (i) many thanks .
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