Question - Suppose there are two goods: X and Y. Both goods are normal.
a) Show the income and substitution effects of a decrease in the price of good Y. Label the vertical axis Good X and label the horizontal axis Good Y.
b) Explain how total effect of the decrease in price of good Y is divided into the income and substitution effects in graph (a).
c) Below graph (a), draw the corresponding demand curve for good Y. Label the vertical axis the Price of Good Y and Label the horizontal axis Good Y.
d) Explain the demand curve in graph (c).