Consider a Consumer Who Consumes Only $x _ { 1 }$

question 16

Essay

Consider a consumer who consumes only $x _ { 1 }$ and $x _ { 2 }$ .The price of $x _ { 2 }$ falls.
a.On a graph with
$x _ { 1 }$ on the horizontal and
$x _ { 2 }$ on the vertical axis,illustrate the change in this consumer's budget constraint assuming exogenous income I.
b.Illustrate income and substitution effects for
$x _ { 1 }$ assuming that both goods are normal.
c.Can you tell whether the cross-price demand curve for
$x _ { 1 }$ is upward or downward sloping?
d.Suppose
$x _ { 1 }$ is leisure hours and
$x _ { 2 }$ 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?

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