Income and substitution effect for normal good

Reference no: EM1315629

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 increases from Px1to Px2. On a clearly labelled graph, illustrate the income and substitution effects of the price change on the consumption of food. Do so for each of the following goods

(a) Food is a normal good

(b) The income elasticity of demand for food is zero

(c) Food is an inferior good, but not a Giffen good

(d) Food is a Giffen good

Reference no: EM1315629

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