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Illustrate the income and substitution effects

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David purchases two goods: bananas (x) and tea (y). Her indifference curves are smooth and convex. Suppose the price of tea decreases. On a graph, illustrate the income and substitution effects of the price change on Diana's optimal consumption bundle for each of the following cases: (a) Tea is an inferior good for Diana, but not a Giffen good. (b) Diana's income elasticity of demand for tea is zero. (c) Bananas and tea are both normal goods.

Reference no: EM131237517

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