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Problem:
(a) Explain with the help of a diagram, the effect on a consumer's equilibrium, of an increase in the price of commodity X while the consumer's money income and price of commodity Y remains unchanged.
(b) If the government intends to restore the consumer's current welfare to its original level, illustrate how would the process of income compensation proceed to realise that objective.
Equilibrium Income In this model, aggregate desired expenditure has three components: Consumption, Investment and Government Expenditure:
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TC=100+0.15Q, Qu=1000-10Pu
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