Question: Olivia has received a $15 gift certificate that is redeemable only for roasted peanuts. Bags of roasted peanuts come in two sizes, regular and jumbo.

Olivia has received a $15 gift certificate that is redeemable only for roasted peanuts. Bags of roasted peanuts come in two sizes, regular and jumbo. A regular bag contains 30 peanuts and a jumbo bag contains 50. A regular bag costs 50 cents. Olivia cares only about the total number of peanuts. Using graphs, show how to decompose the effects of the following uncompensated changes in the price of a large bag into substitution and income effects:
a. The price of a jumbo bag falls from $1.25 to $1.00.
b. The price of a jumbo bag falls from $1.00 to $0.75
c. The price of a jumbo bag falls from $0.75 to $0.60

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a Suppose the price of a jumbo bag falls from 125 to 100 The uncompensated total effect of this price change on Olivias purchase of jumbo bags is0 The ... View full answer

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