A consumer's utility function is U (x, y) = x + y . Suppose he has income I = 5 and the price of y is 1.
a) Draw the demand curve for x with Px on the vertical axis and x on the horizontal axis. (Hint: start with a really high price of x, think about how the consumption of x changes when the price of x keeps decreasing.)
b) Calculate the income and substitution effects (with respect to x) when the price of x decreases from 0.5 to 0.2.