Suppose there are two goods, that the prices are given, and that there is a consumer worth a certain income. Show in a diagram how it is possible to split the effects of a price fall on good 1 into the income and substitution effects. Assume that the good is a normal good.
Suppose there are two goods, that the prices are given, and that there is a consumer worth a certain income. Show in a diagram how it is possible to split the effects of a price fall on good 1 into the income and substitution effects. Assume that the good is a normal good.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose there are two goods, that the prices are given, and that there is a consumer worth
a certain income. Show in a diagram how it is possible to split the effects of a price fall
on good 1 into the income and substitution effects. Assume that the good is a normal
good.
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