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Unformatted text preview: 5. (a) The substitution effect causes her to buy more clothes because clothing is a normal good and therefore when she has more income as a result of the price drop she will buy more clothes and less of a substitute such as food. (b) The income effect causes her to buy more clothing because the price drop effectively increased her available income to spend on clothes....
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This note was uploaded on 10/04/2011 for the course EC 251h taught by Professor Woodbury during the Fall '10 term at Michigan State University.
- Fall '10