Question

In the diagram on the right the consumers original budget line is L1, and the consumer buys the amount of good X at point A.

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Answer #1

Ans:The substitution effect due to the price change is the movement from point A to point B.

Explanation:

Price effect = Income effect + Substitution effect

In the above figure;

Price effect = Movement from point A to point C.

Income effect = Movement from point B to point C.

Substitution effect = Movement from point A to point B

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