Initially the price of good X is $4 and the price of good Y is $8. Income is $200 per unit of time. Income decreases from $200 per unit of time to $100 per unit of time. X is an inferior good.
a. What happens to the slope of the budget line?
b. Is there a substitution effect? If so, how is the utility maximizing quantity of good X affected?
c. What happens to the X-intercept of the budget line? (Be specific)
d. What happens to the Y-intercept of the budget line? (Be specific)
e. Is there an income effect? If so, how is the utility maximizing quantity of good X affected?
f. Accounting for both the income and substitution effects, how is the utility maximizing quantity of X affected?