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Hpreet796 Hpreet796
wrote...
Posts: 472
5 years 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.
Textbook 
Economics Today: The Micro View

Economics Today: The Micro View


Edition: 19th
Author:
Read 41 times
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Answer verified by a subject expert
JaxJax
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Posts: 369
5 years ago
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Hpreet796 Author
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5 years ago
Thanks for your help!
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