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In class, we dicussed that if c and c' are normal goods, then the income effect for these two goods will be positive. Now, consider c now is an inferior good, show with 2 separate diagrams, how the optimal c and c' will change if i) there is an increase in lifetime income, and ii) if there is an increase in the interest rate r.

In class, we dicussed that if c and c' are normal goods, then the income effect for these two goods will be positive. Now, consider c now is an inferior good, show with 2 separate diagrams, how the optimal c and c' will change if i) there is an increase in lifetime income, and ii) if there is an increase in the interest rate r.

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter20: Consumer Choice And Elasticity
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Problem 3CQ: Recent research confirms that the demand for cigarettes is not only inelastic, but it also indicates...
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In class, we dicussed that if c and c' are normal goods, then the income effect for these two goods will be positive. Now, consider c now is an inferior good, show with 2 separate diagrams, how the optimal c and c' will change if i) there is an increase in lifetime income, and ii) if there is an increase in the interest rate r.  

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