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Sam consumes only green eggs and ham. Ham is an inferior good for Sam. One day...

Sam consumes only green eggs and ham. Ham is an inferior good for Sam. One day the price of green eggs goes up.

a. Illustrate Sam’s old and new optimum points, and show both the substitution and the income effects. How does this graph reflect the fact that ham is an inferior good?

b. True or False: When the price of green eggs goes up, Sam certainly buys more ham than before. Justify your answer carefully, by considering the directions of both the substitution and income effects.

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