2. (a) Discuss the income and substitution effects of a price change in case of an inferior good. 10
(b) Consider the demand curve AC of a good in Figure 2. Given distance AB and BC as x and y.
units respectively,
(i) What will be the price elasticity of demand for the good at point B? What will be the price
elasticity of demand for the good at point A and at point C?
5
(ii) Given that price elasticity at point B is 1, how .r and y will be related.?
5
Price
IS
vignment
SERU
Figure 2
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