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Posts: 165
2 months ago

Question 1.

The real-income and the substitution effects reinforce each other by

• increasing the consumption of good B when the price of A falls.

• decreasing the consumption of good A when the price of good A increases.

• increasing the consumption of both goods A and B when income increases.

• decreasing the consumption of good A when the price of good B falls.

Question 2.

The real-income effect is typically small because

• income has no relation to consumption.

• price changes tend to balance out over time.

• real-incomes are always rising.

• the change in price of one particular item has little effect on total purchasing power.
Source  Download
Economics Today: The Micro View
Edition: 19th
Author:
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2 months ago
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Answer 1

decreasing the consumption of good A when the price of good A increases.

Answer 2

the change in price of one particular item has little effect on total purchasing power.
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2 months ago
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