Suppose that Julie always spends $40 per month on wine (good X) and the remainder of her income on everything else (the composite commodity, good Y). Let the price of the composite commodity be $1 per unit of Y (this means that Y represents the $ spent on all goods other than wine.)
State Julie’s demand function for wine.
State Julie’s demand function for the composite commodity.
Draw an income-consumption path for Julie as her income reaches successively higher levels, all else equal.
Draw two Engel curves for Julie: one for wine and one for the composite commodity. (On these Engel curves include any intercept and slope information that can fully describe the curves.)
Draw a price-consumption path for Julie as the price of wine falls, all else equal. For this graph assume that her income is $100 and the price of a glass of wine falls from $4 to $2 to $1. Draw the three corresponding budget constraints and clearly identify the optimal choice on each constraint. Then show the price-consumption path for wine.
Draw the demand curve for wine, based on the price points in part e.