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Answer to Question #148760 in Microeconomics for queen
Question #148760
A maximizing consumer with preferences u = x1/2y1/2 has an income of 50 dollars. Prices are pX = 1 and pY = 2. At CostCo the price of good X is pX = 0.25. Provide an Indifference Curve Diagram to illustrate and quantify the Income Effect and Substitution Effect for this price change. The horizontal intercept of her compensated budget line is equal to
Expert's answer
Income Effect
Substitution Effect
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