The price of good falls P corresponding budget constraints BI and B2, respectively. The two indifference with U1. Point curves are and U2, w A is the initial consumpt bundle of goods x and Y, and point B is the consumption bundle after the price change. A) Mark the tangency point used to determine the substitution effect resulting from the price change as point A\'. B) On the graph, labe technique we learned in class. g for positive and for negative. Substitution Income Total Effect Effect Good X Good Y D) Is good Xnormal, inferior, or Giffen? E) Is good Y normal, inferior, or Giffen? Solution A). As the price of good Y will fall from point B to A curve and from price PY1 to PY2 the subsitution effect will result in increase quantity demanded for products with lower relative prices. b). As the price of good Y fall it will increase it\'s demand and also purchasing power of consumer and over all increase the demand of product Y. When the price of Y falls, the budget line rotates out and the consumer .

1. The price of good falls P corresponding budget constraints BI and B2, respectively. The two
indifference with U1. Point curves are and U2, w A is the initial consumpt bundle of goods x and
Y, and point B is the consumption bundle after the price change. A) Mark the tangency point
used to determine the substitution effect resulting from the price change as point A'. B) On the
graph, labe technique we learned in class. g for positive and for negative. Substitution Income
Total Effect Effect Good X Good Y D) Is good Xnormal, inferior, or Giffen? E) Is good Y
normal, inferior, or Giffen?
Solution
A). As the price of good Y will fall from point B to A curve and from price PY1 to PY2 the
subsitution effect will result in increase quantity demanded for products with lower relative
prices.
b). As the price of good Y fall it will increase it's demand and also purchasing power of
consumer and over all increase the demand of product Y.
When the price of Y falls, the budget line rotates out and the consumer