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123lol456 123lol456
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Short description: Two graphs labelled good X and good Y. Long description: The first graph represents part (1). The horizontal axis representing the quantity lists the following values from left to right: B, C, and A. The vertical axis representing the price lists the following values from top to bottom: P subscript 1 and P subscript 0. A decreasing line, D passes through the points, (C, P subscript 1), and (A, P subscript 0). A point is marked at (B, P subscript 1) that lies to the left of (C, P subscript 1). The second graph represents part (2). The horizontal axis representing the quantity lists the following values from left to right: C, B, and A. The vertical axis representing the price lists the following values from top to bottom: P subscript 1 and P subscript 0. A decreasing line, D passes through the points, (C, P subscript 1), and (A, P subscript 0). A point is marked at (B, P subscript 1) that lies to the right of (C, P subscript 1).

FIGURE 6-5

Refer to Figure 6-5. The price of good X increases from P0 to P1. The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C. Which of the following statements best describes the combination of the two effects on the change in quantity demanded of good X?



▸ The income effect reinforces the substitution effect.

▸ The income effect is zero.

▸ The income effect partially offsets the substitution effect.

▸ The income effect fully offsets the substitution effect.

▸ The income and substitution effects are of equal magnitude.
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Microeconomics

Microeconomics


Edition: 17th
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