Explain income effect-substitution effect and total effect

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Consumers only consume Diet Coke and Potato Chips. Using indifference curves and budget constraints, graphically and intuitively explain what will happen to consumer’s optimal consumption bundle if there has been an increase in the price of Potato Chips. Assume that Diet Coke is an inferior good and Potato Chips are a normal good. Make sure you specify and explain Income Effect, Substitution Effect, and Total Effect.

Reference no: EM13984127

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