Make sure you give complete definitions and explanations for this set of questions. When dealing with thedecrease in income, you will want to talk about the effects on thebudget constraint and the consumption bundle of the consumer. Remember, there are only two goods in the model.
What is a budget constraint? How does a budget constraint explain consumer choices when used in conjunction with indifference curves? Explain what happens if a household looses half of their income,using a budget constraint and indifference curves