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Suppose the initial price of apples is $1 per lb. and the price of orange is $2 per lb. A typical consumer has income $10 and spends all his income on the two goods. The consumer buys 4 lbs of apples at the initial price levels. Later the price of apples increases to $2 per lb and the price of orange remains unchanged, and the consumer buys 3 lbs apples. Based on indifference/budget constraint knowledge, derive the demand curve for apples. Make sure you label all the prices and quantities carefully. (Hint: calculate the quantities demanded for oranges in the 2 circumstances first.)

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M91870256

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