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Purchasing power of Income Effects

Whenever the price increases for a good that you enjoy extremely and purchase regularly: (i) The purchasing power of your income is reduced. (2) You adjust more rapidly than when the good was insignificant to you. (3) Your substitution effect is over-powered by an income effect and hence your demand curve is positively sloped. (4) You encounter diminishing marginal utility at low levels of the consumption.

Choose the right answer from the above option

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