Maisha spends all her income on good x and good y as the


Maisha spends all her income on good X and good Y. As the price of good X increases while the price of the price of good Y remains fixed, Maisha’s price-consumption curve is horizontal.

a) Let the price of good Y be $1 per unit and Maish’s income be M. Draw the diagram that illustrates the situation described above.

b) How does Maisha’s expenditure on good X respond to changes in the price of good X?

c) Is good X a complement or a substitute for good Y? Explain.

d) What is Maisha’s price elasticity of demand for good X? Explain.

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Business Economics: Maisha spends all her income on good x and good y as the
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