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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Does a change in price both an income effect and a substitution effect? Does a change in income have income effect and a substitution effect?

To determine

Whether change in price and change in income have both an income effect and a substitution effect.

Explanation

The change in the price of the commodity has both an income effect and a substitution effect. For example, the fall in Pepsi Price results in an increase in consumer purchasing power. Which means the consumer can now buy more units with the same level of income. The fall in Price leads to an increase in the real income of the consumer. The fall in Pepsi price induce the consumer to buy more units of Pepsi as well as more units of Pizza. (This is an income effect...

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