Question

Suppose the price of candy is initially $3 per candy in City A but that it...

Suppose the price of candy is initially $3 per candy in City A but that it may change by the next period.

Draw the Marshallian demand curve for the demand for candy, and the associated Hicksian demand, as a function of the price of candy. Carefully label the axes, show how the two curves compare to each other, and label the point at which the curves cross.

Suppose now that the price of candy increases to $5. Show on the graph the new quantity that would be purchased by the consumer and carefully label to change in quantity demanded due to the income and substitution effects.

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Draw the Marshallian demand curve for the demand for candy, and the associated Hicksian demand, as a function of the price of candy. Carefully label the axes, show how the two curves compare to each other, and label the point at which the curves cross.

Suppose now that the price of candy increases to $5. Show on the graph the new quantity that would be purchased by the consumer and carefully label to change in quantity demanded due to the income and substitution effects.

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