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    Question

    Which method is used by Hicks to eliminate the income

    effect when price of a product is changed
    A Compensating variation in income Correct Answer Incorrect Answer
    B The cost difference Correct Answer Incorrect Answer
    C The over compensation effect Correct Answer Incorrect Answer
    D Substituting variation in price Correct Answer Incorrect Answer

    Solution

    Hickshas separated thesubstitution effectand theincome effectfrom theprice effectthrough compensating variation inincomebychangingthe relativepriceof a good while keeping the realincomeof the consumer constant.

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