36. What is substitution effectan income increase leading to the outward budget line and ICprice of a good change leading to the relative prices change and choice ofindividual to consume a cheaper good moreboth prices of goods change in the same direction and no change in consumptionratioอื่นๆ:37. What is 'not' correct about income effect?income effects results from changes in lower good pricesIncome effects results from the move in the budget constraint outwardincome effects results from the move in the budget constraint inwardincome effects can be seen along the same ICO อื่นๆ: 34. What is correct statement about IC?Marginal rate of substitution is constant along the normal ICIC can be crossedThe lower IC line shows the higher preference.The optimum choice is where the highest IC can touch the budget lineO อื่นๆ35. When will the new optimum choice can occur?when one has more incomewhen a relative price changewhen price of a good fallall are correctO อื่นๆ:

Answered: 36. What is substitution effect an…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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36. What is substitution effect
an income increase leading to the outward budget line and IC
price of a good change leading to the relative prices change and choice of
individual to consume a cheaper good more
both prices of goods change in the same direction and no change in consumption
ratio
อื่นๆ:
37. What is 'not' correct about income effect?
income effects results from changes in lower good prices
Income effects results from the move in the budget constraint outward
income effects results from the move in the budget constraint inward
income effects can be seen along the same IC
O อื่นๆ:

34. What is correct statement about IC?
Marginal rate of substitution is constant along the normal IC
IC can be crossed
The lower IC line shows the higher preference.
The optimum choice is where the highest IC can touch the budget line
O อื่นๆ
35. When will the new optimum choice can occur?
when one has more income
when a relative price change
when price of a good fall
all are correct
O อื่นๆ:

Expert Solution

Step 1

Q36) The correct answer is OPTION B

Whenever the price of a good changes then the relative price ratio between the goods is altered and this results in the consumer to substitute more of the cheaper good in his consumption basket and hence the optimum consumption bundle is altered and hence the change in consumption bundle due to change in the relative price ratio is called the substitution effect .

All the other options are incorrect because Option A represent the income effect and Option C represent the no change in consumption bundle .

Q37)OPTION D is correct Option because the

Income effect can never be observed on the same IC as it causes the Budget Line to shift and hence resulting in a New IC and hence cannot be observed along the same IC .

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