Substitution effects associated with an increase in price

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Reference no: EM13861552

Suppose a consumer spends her income on lobster and frozen pizza. Assume that the consumer has an income of $600, the price of lobster is $50, and the price of frozen pizza is $6. Using indifference curves and budget constraints show the income and substitution effects associated with an increase in the price of frozen pizza. Put frozen pizza, a Giffen good, on the horizontal axis and lobster, a normal good, on the vertical axis.

Reference no: EM13861552

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