Suppose a model with only two goods, X and Y. Draw the budget constraint of a consumer with income I who faces a price for good Y equal to 1 and a price for good X that increases with the quantity of good X bought. Explain the shape of the graph using the relationship between the slope of the budget line and the ratio of prices.

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Normal and Inferior Goods

Understanding a normal good and an inferior good is important because it tells us what will happen to demand different products during booms and recessions.