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In class, we dicussed that if c and c' are normal goods, then the income effect for these two goods will be positive. Now, consider c now is an inferior good, show with 2 separate diagrams, how the optimal c and c' will change if i) there is an increase in lifetime income, and ii) if there is an increase in the interest rate r.

In class, we dicussed that if c and c' are normal goods, then the income effect for these two goods will be positive. Now, consider c now is an inferior good, show with 2 separate diagrams, how the optimal c and c' will change if i) there is an increase in lifetime income, and ii) if there is an increase in the interest rate r.

Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 5CQQ
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In class, we dicussed that if c and c' are normal goods, then the income effect for these two goods will be positive. Now, consider c now is an inferior good, show with 2 separate diagrams, how the optimal c and c' will change if i) there is an increase in lifetime income, and ii) if there is an increase in the interest rate r.  

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