Problem
a. Provide a graphical two-commodity (one private good and one public good) example of a preference relation generating an income elasticity of the demand for public good that is greater than one.
b. Show that in this case the fraction of the budget spent on public good increases as income increases. Explain also why the indifference curve in this two-commodity space is negatively sloped and convex (preferences are convex if for any two points on the same indifference curve the line segment between them is in the ‘‘weakly preferred'' set, which is defined as the set of commodity bundles (weakly) preferred to any bundle that lies on the indifference curve.)
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.