(Answered) Erin spends all her income on good x and good y as the

Management Studies

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

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

b) How does Erin'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 Erin's price elasticity of demand for good X? Explain.

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