Open Word and answer the following questions. Save the document and print it when you are done. 1. Click the Reset button on the OptimalChoice sheet and apply a price decrease for good 1 from $2/unit...

Open Word and answer the following questions. Save the document and print it when you are done.

1. Click the Reset button on the OptimalChoice sheet and apply a price decrease for good 1 from $2/unit to $1.90/unit. Compute the total, substitution, and income effects. Show your work.

2. Use Word’s Drawing Tools to draw a graph similar to Figure 1.4.7.3 that shows the total, substitution, and income effects from the 10 cent decrease in price from question 1.

3. In 1.4.2, it was shown that the Income Consumption (and Engel) Curve has a kink for low levels of income. Click the Reset button on the OptimalChoice sheet and set income to 10. Compute the total, substitution, and income effects from a 10 cent price increase in good 1 (from $2 to $2.10). Show your work.

4. Use Word’s Drawing Tools to draw a graph depicting your results for question 3.