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For an inferior good, income and demand move in opposite directions. The decrease in income makes the demand curve for white flour shift to the right. The goods are substitutes, so an increase in the price of Coke makes the demand for Pepsi shift to the right. This in turn raises the price of Popsi. Be sure you understand why option A) is not the right answer. The increase in the price of citric acid causes the supply of L-L to decrease. The decrease in the
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Unformatted text preview: price of peanuts causes an increase in the demand for L-L. Item I shifts the demand curve to the right. Item II shifts the supply curve to the left. Item III shifts the demand curve to the left (the opposite of item I). If all events happen, price change is indeterminate, but depends on the sizes of the changes. If I and II happen, then quantity is indeterminate, but depends on the sizes of the changes....
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