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3 neutrals and bads the consumer spends all of her

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Unformatted text preview: demand functions 5.3. Some examples Apply the model of consumer choice to examples of preferences in chapter 3 1) Perfect substitute: Demand function for good 1: Meaning: - if two goods are perfect substitutes, then a consumer will purchase the cheaper one. - If both goods have the same price, then the consumer doesn’t care which one he or she purchases. 2) Perfect complement The optimal choice must always lie on the diagonal, where the consumer is purchasing equal amounts of both goods, no matter what the prices are -...
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