3) Are good X and good Y substitutes, or complements and why? 4) Is good X normal, or inferior and why? Question 1 Income and Substitution Effect of a Price Change Y I/Py I/PX U U₁ X I/PX1 In the above diagram, initially Px=Px, and the consumer is in equilibrium at E. Suppose Px increases from Px to Px1. If gg' is the artificial budget line created using Hick's method of decomposition:

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A: Utility: - Utility is the satisfaction derived by any consumer by consuming a good or service.

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Q: then how much compensating and equivalent variations?

A:

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Q: 1. Would you expect marginal utility to rise or fall with additional consumption of a good? Why?

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

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Q: Good Y 40 30 O L L1 L2 8* e₁ ./1 12 60 Good X I The arrow on the graph above shows the budget line…

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