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Mr. Omondi demand function for rice is given by
X = 15 + M (25P) -1
Where X = amount of rice demanded, M = income of the consumer, P = price of rice.
Originally, the income of Mr. Hassan is 19,200 per month and the price of rice is kshs. 200/kg. If the price increases to kshs 240/kg, calculate to total effect (TE), substitution effect (SE) and Income effect (IE) emanating from this change in price. Is rice an inferior or a normal good.
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Rigorously analyze the issues you have identified. Base your arguments on data in the case. Demonstrate your critical thinking ability, creativity, and insight, as well as appropriate use of the tools provided in the text or in previous courses.
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