Asked by DIVYNE PERRIN on Jul 21, 2024

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Jane is a utility-maximizing consumer who is spending her entire budget on the optimal quantity of wallets and eyeglasses.The price of wallets falls.Jane will _____ her consumption of wallets if wallets are a(n) _____ good and (because) the income effect _____ the substitution effect.

A) decrease;inferior;is weaker than
B) increase;inferior;is stronger than
C) increase;normal;reinforces
D) decrease;normal;reinforces

Optimal Quantity

The amount of a good or service that maximizes the net benefit to an individual or society, often considering factors like cost and utility.

Utility-maximizing Consumer

An economic concept where consumers aim to get the greatest utility or satisfaction from their purchases given their budget constraints.

Inferior Good

A type of good for which demand decreases as the income of consumers increases, unlike normal goods, where demand increases with rising income.

  • Learn about the impact of income and substitution effects on the decision-making process of consumers.
  • Recognize the distinction between normal and inferior goods, and how their demand curves behave.
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NJ
Ntsakisi Julia MabasaJul 23, 2024
Final Answer :
C
Explanation :
If wallets are a normal good, then as the price of wallets falls, Jane's purchasing power increases, leading to an increase in demand for both wallets and eyeglasses. The income effect reinforces the substitution effect, meaning that Jane will consume more of both goods in response to the fall in the price of wallets. Therefore, the correct choice is C.