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Neville spends m = 4000 dollars a month on wine. He pays pX= 20 for red wine and pY= 40 for white wine. Next month
Neville spends m = 4000 dollars a month on wine. He pays pX= 20 for red wine and pY= 40 for white wine. Next month pX= 40, pY= 40. His ordinary demand curve for red wine is X = 0.025m -2pX. Provide an Indifference Curve and Budget Line analysis to decompose the impact of this price change into a Slutsky Substitution Effect and Income Effect as Bundles A, B and C. Show your work. Assume smooth convex indifference curves.
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