Consider an endowment setting where (@1, 2) = (1, 1). Assume that x₁, x₂ are ordinary goods. x₁ is an inferior good and x2 is a normal good. Draw a diagram of Slutsky decomposition of a price decrease. The rotation/shifts of the budget line • The optimal bundle before the price change (A) • The optimal bundle after accounting for only the substitution effect (B) • The optimal bundle after accounting for also the ordinary income effect (C), • The optimal bundle after accounting for the endowment income effect (D)
Consider an endowment setting where (@1, 2) = (1, 1). Assume that x₁, x₂ are ordinary goods. x₁ is an inferior good and x2 is a normal good. Draw a diagram of Slutsky decomposition of a price decrease. The rotation/shifts of the budget line • The optimal bundle before the price change (A) • The optimal bundle after accounting for only the substitution effect (B) • The optimal bundle after accounting for also the ordinary income effect (C), • The optimal bundle after accounting for the endowment income effect (D)
Chapter6: Demand Relationships Among Goods
Section: Chapter Questions
Problem 6.8P
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