Consider a consumer who consumes only and .The price of falls.
a.On a graph with on the horizontal and on the vertical axis, illustrate the change in this consumer's budget constraint assuming exogenous income I.
b.Illustrate income and substitution effects for assuming that both goods are normal.
c.Can you tell whether the cross-price demand curve for is upward or downward sloping?
d.Suppose is leisure hours and is a composite consumption good.Consider an increase in the wage assuming a fixed endowment of leisure (and no exogenous source of income).How is your graph similar and how is it different from what you graphed in (a) through (c)?
e.Is the leisure-demand curve a cross-price demand curve? Why or why not?

Question

Consider a consumer who consumes only  and  .The price of  falls. 
a.On a graph with  on the horizontal and  on the vertical axis, illustrate the change in this consumer's budget constraint assuming exogenous income I. 
b.Illustrate income and substitution effects for  assuming that both goods are normal. 
c.Can you tell whether the cross-price demand curve for  is upward or downward sloping? 
d.Suppose  is leisure hours and  is a composite consumption good.Consider an increase in the wage assuming a fixed endowment of leisure (and no exogenous source of income).How is your graph similar and how is it different from what you graphed in (a) through (c)? 
e.Is the leisure-demand curve a cross-price demand curve? Why or why not?

Quizplus · Accepted Answer

The Answer of Consider a consumer who consumes only  and  .The price of  falls. 
a.On a graph with  on the horizontal and  on the vertical axis, illustrate the change in this consumer's budget constraint assuming exogenous income I. 
b.Illustrate income and substitution effects for  assuming that both goods are normal. 
c.Can you tell whether the cross-price demand curve for  is upward or downward sloping? 
d.Suppose  is leisure hours and  is a composite consumption good.Consider an increase in the wage assuming a fixed endowment of leisure (and no exogenous source of income).How is your graph similar and how is it different from what you graphed in (a) through (c)? 
e.Is the leisure-demand curve a cross-price demand curve? Why or why not?

Consider a Consumer Who Consumes Only and