Question

e- Duion Sllaky equalion. dpz spx Imcom Effect Toof Effect. Subaelulion Effect. 0.7 0. 3 T L4. o. 3 O. 3 %3D 20

Please derive Total, susbstitution and income effect using the information attached.

Don't need theory.

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Answer #1

dPX d PX Total effect PX Now X .3I Рx This du = 031 Total effect substitution effect dae d Py Py 10.7. px ) Now, xe = dhoScanAlso U U - I(0:0) 10.7 1 - 013 1 0.7 Substituting u in 28 axe Xe we get N0.2012 xe /013. PY IL 10.7 PX / ( Px/ 227013 2-0.17

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