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Suppose that the preferences of a consumer regarding the consumption of goods q1 and q2 are represented by function: U (q1, 92) = qaq}-ab. Consider
Suppose that the preferences of a consumer regarding the consumption of goods q1 and q2 are represented by function: U (q1, 92) = qaq}-ab. Consider a reduction in price p2. Drawing and describing the indifference curves and budget constraint, and referring to the concepts of substitution effect and income effect, report how the quantity demanded of q2 changes when p2 decreases. [20 marks]
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