Price of stamps decreases

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Blake buys only apples and stamps, and is consuming his optimal bundle. Suppose that the price of stamps decreases. Assuming that (1) apples are a normal good, and (2) Blake consumes more apples as a result of the decrease in the price of stamps, which effect must be dominant for apples - the substitution effect or the income effect? Explain why. Show the impact of the change in the price of stamps on Blake's consumption bundle, by decomposing it into the income and substitution effects. Carefully label the income effect, substitution effect and total effect on apples consumption on your graph

Reference no: EM131695310

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