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The only goods you consume are eggs and wine. On Monday, you consume basket M. On...

The only goods you consume are eggs and wine. On Monday, you consume basket M. On Tuesday, the price of eggs goes down and you consume basket T. On Wednesday, the price of eggs returns to its Monday level and the price of wine goes down. On Wednesday, you consume basket W and you are exactly as happy as you were on Tuesday. You choose to consume more eggs on Wednesday than on Monday.

  1. Draw in a diagram (measuring quantity of eggs on the horizontal axis) the budget lines for Monday. Tuesday and Wednesday, along with the points M, T, and W.

  2. How does your diagram show that on Wednesday you are exactly as happy as you were on Tuesday?

  3. True or False: On Wednesday you consume less eggs than on Tuesday. Justify your answer.

  4. True or False: Eggs cannot possibly be a Giffen good. Justify your answer.

  5. Can you say whether eggs is a normal or inferior good?


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