[Solution Library] Linda consumes two goods, and . Her utility function is , with and Initially, and Linda's income is $288. Then the price of falls to


Question: Linda consumes two goods, and . Her utility function is , with and Initially, and Linda's income is $288. Then the price of falls to $8. [The following questions ask you to calculate a mathematical example of the income and substitution effects of a price decrease for good X.]

  1. Complete the following table.
  2. The movement from point A to point B illustrates which effect, the income effect or the substitution effect? Explain.
  3. The movement from point \(\mathrm{B}\) to point \(\mathrm{C}\) illustrates which effect, the income effect or the substitution effect? Explain.
  4. Is good \(X\) a normal, inferior, or Giffen good? Explain.

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