Asked by
Quadri Popoola
on Dec 04, 2024
Verified
Refer to Figure 4.2.2 above. Starting from point A, after the price of food decreases,, the quantity of food purchased:
A) increases, due to the income effect but decreases due to the substitution effect.
B) increases, due to the substitution effect but decreases due to the income effect.
C) increases from A to B due to the income effect, and then to C due to the substitution effect.
D) decreases.
Substitution Effect
The change in consumption patterns due to a change in relative prices, causing consumers to substitute away from more expensive items to cheaper alternatives.
Income Effect
The modification of income for someone or within an economy, and its subsequent impact on how much of a good or service is sought after.
- Perceive the intricacies of income effect, substitution effect, and wealth effect in the context of the theory concerning consumer choice.
- Be able to interpret and analyze shifts in demand curves resulting from changes in prices, incomes, or other factors.
Verified Answer
LO
Learning Objectives
- Perceive the intricacies of income effect, substitution effect, and wealth effect in the context of the theory concerning consumer choice.
- Be able to interpret and analyze shifts in demand curves resulting from changes in prices, incomes, or other factors.