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1. Ricky purchases two goods, food and clothing. He has standard preferences with a diminishing marginal...

1. Ricky purchases two goods, food and clothing. He has standard preferences with a diminishing marginal rate of substitution of food for clothing. Suppose the price of food decreases from px to px2. On clearly labeled diagrams, illustrate the income and substitution effects of the price change on Ricky’s consumption of food (do not explicitly worry about the effects on the consumption of clothing). Do so for each of the following cases. Put food on the horizontal axis.

(a) Food is a normal good.

(b) The income elasticity of demand for food is 0.

(c) Food is an inferior good, but not a Giffen good.

(d) Food is a Giffen good.

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