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The price of gasoline increases. Think about how this would affect consumption of gasoline if gasoline preferences are well behaved. What would be the substitution
The price of gasoline increases. Think about how this would affect consumption of gasoline if gasoline preferences are well behaved. What would be the substitution effect (explain what it means intuitively and whether it is likely to be positive or negative)? What do you think would be the income effect (explain what it means intuitively and whether it is likely to be positive or negative)? Draw a graph to illustrate your point.
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