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Question : Question Refer to the above diagram to

Question

Refer to the above diagram to answer this question. Consider an individual with preferences over two goods - good X and good Y. At the initial prices and income the individual faces the budget constraint L1 and the individual’s utility maximising choice of good X is 43 units on indifference curve I2. When the price of good X increases and the price of good Y remains the same, the individual faces budget constraint L2 and chooses to consume 15 units of good X on indifference curve I1. What change in the quantity demanded of good X represents this individual’s substitution effect?

a.

-28

b.

-16

c.

-12

d.

12

e.

16

f.

28

 

a.

-28

 

b.

-16

 

c.

-12

 

d.

12

 

e.

16

 

f.

28

Y L L1 L 1 15 27 43 2

Solution
5 (1 Ratings )

Solved
Economics 4 Months Ago 46 Views
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