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Short Answers Suppose you derive utility from Food (F) and Clothing (C). Your preference exhibits diminishing...

Short Answers

  1. Suppose you derive utility from Food (F) and Clothing (C). Your preference exhibits diminishing MRS between F and C.  Let’s put F on the Horizontal axis and C on the vertical axis.

a. If price of Food increases, show the IE and SE on a separate diagram if F is a normal good.

b. If price of Food increases, show the IE and SE on a separate diagram if F is an inferior good.

c. If price of Food increases, show the IE and SE on a separate diagram if F is a Giffen  good.

d. If price of Food decreases, show the IE and SE on a separate diagram if F is a normal good.

e. If price of Food decreases, show the IE and SE on a separate diagram if F is an inferior good.

f. If price of Food decreases, show the IE and SE on a separate diagram if F is a Giffen  good.

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