Question: Answer all question ab c Thank Question 1 [word limit: 750] Suppose that the preferences of a consumer regarding the consumption of goods and are

Answer all question ab c Thank Question 1 [word limit: 750]

Answer all question ab c Thank

Question 1 [word limit: 750] Suppose that the preferences of a consumer regarding the consumption of goods and are represented by function: where , . Suppose also that the consumer is endowed with some disposable income and faces prices and respectively for goods and . a. What is the nature of the goods in the eyes of the consumer? Provide a real world example. [10 marks] b. Draw a diagram reporting the indifference curves representing the preferences of the consumer and the budget line. Also, derive and describe the demand functions of the consumer for goods and . Draw the diagram for the demand function of good [20 marks] 0. Suppose that >. Suppose that decreases. With the use of a diagram, describe how the quantity demanded of changes and decompose the new demand in terms of income and substitution effects. [20 marks]

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