The Following Graph Applies to a Consumer for Whom Good

question 6

Essay

The following graph applies to a consumer for whom good x is an inferior good.The price of x falls from p to p',and one of the curves below represents the consumer's (uncompensated)demand curve while the other represents the consumer's compensated demand (or MWTP)curve.
a.Which curve is which? (Explain.)
b.What is it about these curves that makes them intersect at the original price p?
c.Once the consumer has optimized at the new price p',illustrate the new (uncompensated)demand and the new MWTP curve.
d.For curves that have shifted,explain why; for curves that have not shifted,explain why as well.

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Definitions:

Causal Relationships

Connections between two events where one event is understood to be a direct result of the other.

Generalization

A broad statement or an idea that applies to a group based on experiences with or observations of a smaller segment of the group.

Controlled Experiments

Experimental designs in which researchers manipulate variables under controlled conditions to determine cause and effect.

Correlation

A mutual relationship or connection between two or more things, where one does not necessarily cause the other.