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Lorena uses her income to consume two goods. Originally, she was consuming at point (a), but then good X became so popular that its price soared. This reduced her budget set and led her to consume at point (b). IC 0 a. Move the line labeled BC and place it such that a new hypothetical budget line identifies the changes in consumption attributed to the substitution effect. (a) IÇ 1 Based on your new diagram, answer the questions. BC (b) b. For the consumption of good X, the substitution effect is greater than the income effect. Quantity of good Y is equal to the income effect. O is less than the income effect. Quantity of good x

Lorena uses her income to consume two goods. Originally, she was consuming at point (a), but then good X became so popular that its price soared. This reduced her budget set and led her to consume at point (b). IC 0 a. Move the line labeled BC and place it such that a new hypothetical budget line identifies the changes in consumption attributed to the substitution effect. (a) IÇ 1 Based on your new diagram, answer the questions. BC (b) b. For the consumption of good X, the substitution effect is greater than the income effect. Quantity of good Y is equal to the income effect. O is less than the income effect. Quantity of good x

Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 1PA
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Lorena uses her income to consume two goods. Originally, she was consuming at point (a), but then good X became so popular that its price soared. This reduced her budget set and led her to consume at point (b). IC O a. Move the line labeled BC and place it such that a new hypothetical budget line identifies the changes in consumption attributed to the substitution effect. (a) IÇ 1 Based on your new diagram, answer the questions. BC (b) b. For the consumption of good X, the substitution effect is greater than the income effect. Quantity of good Y is equal to the income effect. O is less than the income effect. Quantity of good X
Transcribed Image Text:Lorena uses her income to consume two goods. Originally, she was consuming at point (a), but then good X became so popular that its price soared. This reduced her budget set and led her to consume at point (b). IC O a. Move the line labeled BC and place it such that a new hypothetical budget line identifies the changes in consumption attributed to the substitution effect. (a) IÇ 1 Based on your new diagram, answer the questions. BC (b) b. For the consumption of good X, the substitution effect is greater than the income effect. Quantity of good Y is equal to the income effect. O is less than the income effect. Quantity of good X
c. For the consumption of good Y, the substitution effect is greater than the income effect. is equal to the income effect. is less than the income effect.
Transcribed Image Text:c. For the consumption of good Y, the substitution effect is greater than the income effect. is equal to the income effect. is less than the income effect.
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