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(a) State the necessary and sufficient conditions for consumer equilibrium. (b) Choose two goods and their...

(a) State the necessary and sufficient conditions for consumer equilibrium.

(b) Choose two goods and their corresponding prices, such that the consumer is in disequilibrium, i.e., he or she gets more marginal utility from one good than from the other given the goods prices. Indicate how the consumer will change her spending habits to return to equilibrium.

(c) What role does the laws/principle of diminishing marginal utility play in the process you described above?

(d) Characterize as best as you can the substitution effect and the income effect on the consumer equilibrium. You may use graphs.

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