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1. (a) Suppose you spend all of your income on apples and oranges, which are both...

1. (a) Suppose you spend all of your income on apples and oranges, which are both normal goods and which are imperfect substitutes. If the price of apples increases, will you consume more or fewer apples as a result of the substitution effect? What about the income effect?

(b) Suppose you consume two goods: Ramen and Starbucks coffee. Ramen is an inferior good and Starbucks coffee is a normal good. The price of Ramen increases. Assume Ramen is not a Giffen Good. What happens to your consumption of Ramen due to the substitution effect? The income effect? What is the net effect on Ramen consumption?

(c) Now assume Ramen is a Giffen good. What happens to your consumption of Ramen due to the substitution effect? The income effect? What is the net effect on Ramen consumption?

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