Open Word and answer the following questions. Save the document and print it when you are done.
1. Reproduce, using word’s Drawing Tools, Figures 1.4.6.5, 1.4.6.6, and 1.4.6.7, explaining each graph in your own words.
2. Repeat question 1, with one key change: apply a price increase in good 1 (instead of a price decrease).
3. In stating the Law of Demand, some economists choose to include a condition that the good is normal, like this: If the good is a normal good, then price and quantity demanded are inversely related, ceteris paribus. Why is the normal good clause needed?
4. Given the demand function,
compute the total, income, and substitution effects when price falls from $5 to $4, with income of $1000. Show your work.