Asked by
Marleen Lopez
on Dec 17, 2024
Verified
Consider the indifference curve map and budget constraint for two goods, beef and potatoes. Suppose the good measured on the horizontal axis, potatoes, is a Giffen good. Beef is measured on the vertical axis and is a normal good. When the price of potatoes increases, the substitution effect causes
A) an increase in the consumption of potatoes, and the income effect causes a decrease in the consumption of potatoes.The substitution effect is less than the income effect.
B) a decrease in the consumption of potatoes, and the income effect causes an increase in the consumption of potatoes.The substitution effect is greater than the income effect.
C) an increase in the consumption of potatoes, and the income effect causes a decrease in the consumption of potatoes.The substitution effect is greater than the income effect.
D) a decrease in the consumption of potatoes, and the income effect causes an increase in the consumption of potatoes.The substitution effect is less than the income effect.
Giffen Good
A product that people consume more of as the price rises, violating the basic law of demand.
Substitution Effect
The change in consumption patterns due to a change in the relative prices of goods or services.
Indifference Curve
A chart illustrating diverse pairings of two items that offer the same level of contentment and usefulness to a shopper.
- Master the definitions of normal goods, inferior goods, and Giffen goods.
- Absorb knowledge regarding the influence of income and substitution effects on the habits of consumers.
Verified Answer
KM
Learning Objectives
- Master the definitions of normal goods, inferior goods, and Giffen goods.
- Absorb knowledge regarding the influence of income and substitution effects on the habits of consumers.