Question 4. Matt has well-behaved preferences that are consistent with the hypothesis of diminishing MRS. x1 and x2 are normal goods and are gross…

Question 4. Matt has well-behaved preferences that are consistent with the hypothesis of diminishing MRS. x1 and x2 are normal goods and are gross…

Question 4.  Matt has well-behaved preferences that are consistent with the hypothesis of diminishing MRS.  x1 and x2 are normal goods and are gross complements.

A. Suppose p1 increases. In the (x1, x2) plane, graph Matt’s income and substitution effects.

B. In words, describe the total effect as well as the income and substitution effects of the increase in the price of p1 on the consumption of x2 for Matt.

 
"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"