Asked by AZALEA RODRIGUEZ on May 22, 2024
Verified
Maude thinks delphiniums and hollyhocks are perfect substitutes, one for one.If delphiniums currently cost $3 per unit and hollyhocks cost $4 per unit and if the price of delphiniums rises to $6 per unit,
A) the income effect of the change in demand for delphiniums will be bigger than the substitution effect.
B) there will be no change in the demand for hollyhocks.
C) the entire change in demand for delphiniums will be due to the substitution effect.
D) 1/3 of the change in demand will be due to the income effect.
E) 2/3 of the change in demand will be due to the income effect.
Perfect Substitutes
Goods or services that can be used in exactly the same way and are interchangeable in consumption or use.
Income Effect
The variation in a person's or an economy's earnings and its effect on the amount of a product or service that is requested.
Substitution Effect
The change in consumption patterns due to a change in the relative prices of goods.
- Differentiate the concepts of income and substitution effects in the realm of consumer choice theory.
- Assess how shifts in pricing affect the attraction towards exact substitutes.
Verified Answer
Learning Objectives
- Differentiate the concepts of income and substitution effects in the realm of consumer choice theory.
- Assess how shifts in pricing affect the attraction towards exact substitutes.
Related questions
Maude Thinks Delphiniums and Hollyhocks Are Perfect Substitutes, One for ...
Maude Thinks Delphiniums and Hollyhocks Are Perfect Substitutes, One for ...
For Molly, the Substitution Effect of a Wage Increase Is ...
Jane Is a Utility-Maximizing Consumer Who Is Spending Her Entire ...
The Income Effect of a Price Change Is the Effect ...