Consumer Y has set aside a budget for bus transportation to her office and coffee (C)...

 

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Consumer Y has set aside a budget for bus transportation to her office and coffee (C) at work. The budget constraint (BO) and indifference curve (CO) of consumer Y is provided in figure 1 below with initial optimal point at A. When the price of coffee declines from AED15 to AED 10, the new budget line is B1 with optimal point at B. Figure 1 Bus rides 29 A BO CO B B1 34 Coffee a). Sketch on the graph the income effect and substitution effect for coffee b). Is coffee a normal or inferior good? Briefly explain c). What is consumer Y's marginal rate of substitution at point B. Briefly explain how you obtain the MRS at this point Consumer Y has set aside a budget for bus transportation to her office and coffee (C) at work. The budget constraint (BO) and indifference curve (CO) of consumer Y is provided in figure 1 below with initial optimal point at A. When the price of coffee declines from AED15 to AED 10, the new budget line is B1 with optimal point at B. Figure 1 Bus rides 29 A BO CO B B1 34 Coffee a). Sketch on the graph the income effect and substitution effect for coffee b). Is coffee a normal or inferior good? Briefly explain c). What is consumer Y's marginal rate of substitution at point B. Briefly explain how you obtain the MRS at this point

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