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Unformatted text preview: b. (3 points) Is the income effect or the substitution effect bigger for hair gel for Ryan? How do you know? Question 2 (12 points) Consider the perfectly competitive market for apple sauce in Austin. For each of the following statements, show what happens to market price and quantity on a well labeled graph. State in words what happens, and explain why (why did you change your graph the way that you did?) (Each part is independent from the others.) a. (3 points) A news report shows that apple sauce decreases cancer risk. b. (3 points) The price of apples decreases and people (consumers) move out of Austin. c. (3 points) The price of pork (a compliment for apple sauce) decreases and there is a decrease in the cost of jars (to hold the apple sauce.) d. (3 points) The cost of sugar increases....
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This note was uploaded on 06/08/2008 for the course ECON 304K taught by Professor Ledyard during the Spring '08 term at University of Texas at Austin.
- Spring '08