Econ101October29 - real income associated with a rise in...

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Econ 101 October 29, 2007 Prelim: 7:30 Statler Auditorium 1. Economists decompose the effect of a change in price on the quantity demanded into an income and a substitution effect a. Income Effect: due to increase in real income associated with a fall in prices (you can buy more with the same nominal income) or the loss of
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Unformatted text preview: real income associated with a rise in prices (you cannot buy as much as you once did with the same nominal income) b. Substitution Effect: due to change in the relative price of the good, cheaper goods are substituted for more expensive ones c....
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