a. Derive the demand for food (x) (as a function of px , py, I). (If you can’t solve for the general case, solve for the special case with I = $120 price of clothing py = 1, for half the points. Unfortunately you won’t be able to answer the next part if you could only solve for the special case) b. Given the demand in (a), is food (x) a normal or inferior good? Are food and clothing substitutes or complements? Calculate the income elasticity of food demand at the point I = $120 , px = 9, py = 1. c. If her income is I = $120, price of clothing py = 1 and the initial price of food px = 4 is increased to px = 9, calculate the substitution effect and the income effect of this price hike on the amount of food (x) chosen.
a. Derive the
b. Given the demand in (a), is food (x) a normal or inferior good? Are food and clothing substitutes or complements? Calculate the income
c. If her income is I = $120, price of clothing py = 1 and the initial price of food px = 4 is increased to px = 9, calculate the substitution effect and the income effect of this price hike on the amount of food (x) chosen.
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