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Graphically draw and explain the income effect curve: 1

Economics

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Graphically draw and explain the income effect curve: 1.Annie consumes two goods: sandwiches and coffee, with respective quantities s and c. Suppose the price of a sandwich is $6 and the price per coffee is $2. Annie’s income is m. (a)Suppose m = $60. Write down Annie’s budget constraint and plot her budget set and budget line (put c on the horizontal axis). Label everything carefully. ( 02 Marks) (b)Suppose m increases to $ 80, then whether the new budget constraint would shift parallel to right or left. Finally draw the Income Effect Curve. ( 02 Marks) Why indifference curves never intersect. Prove graphically? (2 Marks) A firm produces Q1 units of item 1 & Q2 units of item 2. (04 Marks) TC = 30 Q1 + 30 Q2 – 4 Q1 Q2 Find the marginal cost for firm 1 & 2?