Consider the figure above, which shows the budget constraint and the indifference curves of good King Zog. Zog is in equilibrium with an income of $300, facing prices P-$4 and P-$10. a. How much X does Zog consume? b. If the price of X falls to $2,50, while income and the price of Y stay constant, how much X will Zog consume? c. How much income must be taken away from Zog to isolate the Hicksian income and substitution effects (i.e., to make him just able to afford to reach his old indifference curve at new prices)? d. The total effect of the price change is to change consumption from the point to the point e. The income effect corresponds to the movement from the point the substitution effect corresponds to the movement from the point f. Is Xa normal good or an inferior good? to the point to the point while

Consider the figure above, which shows the budget constraint and the indifference curves of good King Zog. Zog is in equilibrium with an income of $300, facing prices P-$4 and P-$10. a. How much X does Zog consume? b. If the price of X falls to $2,50, while income and the price of Y stay constant, how much X will Zog consume? c. How much income must be taken away from Zog to isolate the Hicksian income and substitution effects (i.e., to make him just able to afford to reach his old indifference curve at new prices)? d. The total effect of the price change is to change consumption from the point to the point e. The income effect corresponds to the movement from the point the substitution effect corresponds to the movement from the point f. Is Xa normal good or an inferior good? to the point to the point while

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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