--%>

problem on Substitution effect for good

One of my friend has a problem on substitution effect. The original equilibrium point (that is utility-maximizing bundle) in the graph shown below is at point A. The price of good Y is increased, pivoting the budget constraint down to its latest level.

a. Find out and clearly label the substitution effect for good Y on the graph.

b. Supposing that X and Y are both normal goods, draw an indifference curve tangent to the new, lower budget constraint.  Now Clearly indicate where the tangency point is and then label the income effect for the good Y on the graph.

   Related Questions in Microeconomics

  • Q : Less marginal revenue then price charged

    For a nondiscriminating monopolist, there marginal revenue is: (w) profit per unit minus cost per unit. (x) total revenue per unit minus total cost per unit. (y) the modification in total revenue divided by the modification in total c

  • Q : Monopolistic and competitive tools in

    Most markets into the American economy are: (i) purely competitive. (ii) primarily unregulated monopolies. (iii) blends of monopolistic and competitive tools. (iv) dominated by regulated monopolies. (v) governed through the decisions of political lead

  • Q : Controlling costs in the short run

    Executives at the helms of monopolies that may pay little attention to controlling costs within the short run, but during the long run the monopoly will tend to be operated into a technically efficient fashion since: (w) the firm will

  • Q : Trends in Poverty Into the United

    Into the United States during 2000 and 2005, the: (w) number of families below the poverty line declined. (x) distribution of after-tax income became significantly more equal. (y) percentage of families below the poverty line grew. (z) share of wealth possessed by the

  • Q : Charging price in short run for profit

    Now Roast chicken dinners replace fried chicken in popularity in this given demonstrated figure. In the short run that profit maximizing firm will charge a price equal to: (w) $12.00. (x) $11.00. (y) $10.00. (y) $9.00. (z) $6.50.

    Q : High poverty rate among not employed

    The high poverty rate in between those who do not work: (w) reflects voluntary choices for leisure over income and work. (x) is no cause for concern if it involves voluntary choice. (y) occurs since family responsibilities prevent many people from wor

  • Q : Diminishing marginal utility and

    The three reasons for downward slope of a demand curve are: (1) Diminishing marginal utility, income effect and the substitution effect. (2) Scarcity, tastes & preferences, and purchasing power. (3) Opportunity costs, rational decision making and

  • Q : Why economic problems occur Why

    Why economic problems occur? Answer: This is due to unlimited or infinite wants and inadequate resources.

  • Q : Automation and Wage Rates When physical

    When physical capital becomes cheaper, in that case: (w) some workers may be displaced but worker productivity usually rises. (x) automation will make jobs for more workers. (y) workers will supply more labor services. (z) labor supply curves will move in backward ben

  • Q : Rates of Return on Investment The

    The income stream per period like a percentage of the dollar outlay for investment into a capital good is the: (1) present value of the investment good. (2) rate of economic profit. (3) interest rate. (4) rate of retu