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Economics

Assume that a person considers carrots (X) and peas (Y) to be normal goods and has convex preferences. a. (10 pts) Design an indifference curve-budget line diagram showing the substitution and income effects created when the price of carrots increases. In your diagram, place carrots on the horizontal axis and peas on the vertical axis. b. (4 pts) How can you tell from your diagram that carrots and peas are normal goods? Explain. c. (4 pts) In your diagram, what happened to the quantity of peas when the price of carrots increased? Does this person view these two goods as substitutes or complements? (Note: answers may vary.)

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Business Economics, Economics

Category:- Business Economics
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