Michelle spends all her money on food and clothing. When the price of clothing decreases, she buys
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Michelle spends all her money on food and clothing. When the price of clothing decreases, she buys more clothing.
a. Does the substitution effect cause her to buy more or less clothing? Explain. (If the direction of the effect is ambiguous, say so.)
b. Does the income effect cause her to buy more or less clothing? Explain. (If the direction of the effect is ambiguous, say so.)
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a The substitution effect causes her to buy more clothing The convexity of indifferenc...View the full answer
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