Trevor always begins the day with a strawberry milkshake (milk (x1) and strawberries (x2) mixed in proportion 1:5). His income is equal to m=200, and one strawberry costs p2=1. Suppose the price of milk drops from p1=15 to p1=5. We are going to decompose the total effect into substitution effect and income effect. a) What is the total change in demand for milk? b) What is the substitution effect? c) What is the income effect?
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Home » Business » Trevor always begins the day with a strawberry milkshake (milk (x1) and strawberries (x2) mixed in proportion 1:5). His income is equal to m=200, and one strawberry costs p2=1. Suppose the price of milk drops from p1=15 to p1=5.