Answer Happy

Suppose that Bob consumes two goods, 2 and y. Each good's price is strictly positive and fixed throughout this question. The diagram below displays a curve consisting of all consumption bundles (x, y) such that there exists an income level w for which (x, y) is optimal. Specifically, a consumption bundles (2,y) is part of the curve shown if and only if there is a unique income level w for which the corresponding budget line is tangent at (x, y) to the indifference curve containing (x,y). y (a) (1 mark) Use the information in the diagram to explain whether at all levels of in- come, x is a normal good for Bob. (b) (1 mark) Use the information in the diagram to explain whether at all levels of in- come, y is a normal good for Bob. (c) (1.5 marks) Draw Bob's Engel curve for r. (You do not have enough information to precisely draw this curve. However, your figure needs to qualitatively capture all of the given information.) (d) (1.5 marks) Draw Bob's Engel curve for y. (You do not have enough information to precisely draw this curve. However, your figure needs to qualitatively capture all of the given information.)