2.

Answer the below questions briefly. Use graphs to support your claim if it is necessary.

What is the Engel curve? Illustrate it using indifference curves (0.5 point)

Define Normal, Inferior, and Giffen goods; come up with an example for each of them. What

is the difference between an Inferior good and a Giffen good? (2.25 points)

What is the difference between the income effect and the substitution effect? (0.5 point)

A consumer buys 25 of good X and 10 of good Y with a hundred dollars (her preference is as follow: U=Min{X,2.5Y}). The prices for goods X and Y are 2$ and 5$, respectively. If the price for good Y decreases to 1.25$, how many of X and Y will she buy, alternatively (0.5 point).

Using the information in part d, illustrate the substitution and income effects when the price for good Y changes. Explain (and illustrate) what types of goods X and Y are (while illustrating, do not violate the properties of the indifference curves/consumers' behavior). (1.75 points)