Eco 1 Spring 2007 Problem Set 6 Answer Key 1)Textbook (Review) questions 9-2.3 and 9.24: 9-2.3: Considering only the income effect, the decrease in price would increase purchasing power, thereby lowering demand for the good. In reality the substation effect also has an impact, though – this does not mean demand curves slope upwards. The law of demand still applies. 9-2.4: As above. The decrease in price decreases demand, via the income effect; however the decrease in price increases the demand, via the substitution effect. 2)Textbook (Problem) questions 9A.4 and 9A.5:
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