ECON 310 Lecture 2: p310x2ans

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ECON 310
E Funkhouser

Problem Set 2 Answer Guide Economics 310 1. For each of the following, use the budget constraintindifference curve diagram to show what happens to the demand curve for good X: a) A change in preferences that favors good X over good Y. Indifference Curve Demand Curve Budget Constraint Before Y P After X Q With the change in preferences, the indifference curves increase moving out more in the direction of good X. At each price (and holding income constant), the individual will demand more of good X and less of good Y. This is a shift out of the demand curve for good X. b) An increase in the price of a substitute for good X when good is a normal good When good X is a normal good, the income effect is negative. The graph should reflect that. Demand Curve Indifference Curve Budget Constraint Y P X Q
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