a) In what direction would the substitution effect push the consumption of food? [Hint: The substitution effect measures the effect of what on what? What is the sign of the effect? In which direction has the relative price of food changed? So in what direction will the consumption of food change?] b) In what direction would the income effect push the consumption of food? c) In what direction would the substitution effect push the consumption of entertainment? d) In what direction would the income effect push the consumption of entertainment? e) If you know that consumption of entertainment falls, what would you conclude about the relative magnitudes of the income and substitution effects?

a) In what direction would the substitution effect push the consumption of food? [Hint: The substitution effect measures the effect of what on what? What is the sign of the effect? In which direction has the relative price of food changed? So in what direction will the consumption of food change?] b) In what direction would the income effect push the consumption of food? c) In what direction would the substitution effect push the consumption of entertainment? d) In what direction would the income effect push the consumption of entertainment? e) If you know that consumption of entertainment falls, what would you conclude about the relative magnitudes of the income and substitution effects?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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