Illustrate the income and substitution effects

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Reference no: EM13214998

An individual consumes a positive amount of good X and good Y. As a result of an excise tax on good Y, its price doubles. At her new equilibrium, the individual consumes the same amount of good X as before.

(a) ?With good X on the X-axis and good Y on the Y-axis, illustrate the income and substitution effects of this change in the price of good Y. What kind of good is Y?
(b) ?What can you say about the price elasticity of demand for good Y?
?(c) ?What can you say about the cross price elasticity of demand for good X with respect to the price of good Y?

 

Reference no: EM13214998

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