Suppose that when the price of X goes up, you respond by consuming less Y .
a) Illustrate the substitution and income effects of an increase in the price of X. How does your graph illustrate the information in italics above?
b) Is Y a normal good or an inferior good? Carefully explain how you can tell.
c) Looking at the effects on your consumption of Y, which is bigger—the income effect or the substitution effect? Carefully explain how you can tell.
Please be sure to note that parts (b) and (c) ask about Y, not X.