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Robert Barber

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TUTORIAL 3WEDNESDAY MAY 28 20144PM5PM QUESTION 32Textpp 133134Currently Paula is maximizing utility by purchasing 5 TV dinners T and 4 Lean Cuisine meals L each weeka Graph Paulas initial utility maximizing choice b Suppose that the price of T rises by 1 and the price of L falls by 125 Can Paula still afford to buy her initial consumption choices What do you know about her new budget constraintc Use your graph to show why Paula will choose to consume more L and less T given her new budget constraint How do you know that her utility will increased Some economists define the substitution effect of a price change to be the kind of change shown in part c That is the effect represents the change in consumption when the budget constraint rotates about the initial consumption bundle Precisely how does this notion of a substitut
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