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Suppose the Price of Potatoes Falls and We Observe a Decrease

Question 44

Multiple Choice

Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes.Which of the following can we infer?


A) The income effect is negative and outweighs the substitution effect.
B) The income effect is negative and reinforces the substitution effect.
C) The income effect just offsets the substitution effect.
D) The income effect is positive and exceeds the substitution effect.
E) The substitution effect outweighs the income effect.

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