-cream sales is not indicative of substitution effect. B The Paasche’s indices are relatively greater than the Las
In general, consumers are price-takers; thus, they are expected to react to price changes by substituting ice-cream
flavours that have become relatively cheaper for those that have become relatively more expensive. This phenomenon is consistent with the substitution effect. Substitution tends to cause a negative
With regard to the observation above, and the indices calculated above, which of the following is false?
A The transaction data on the ice-cream sales is not indicative of substitution effect.
B The Paasche’s indices are relatively greater than the Laspeyre’s indices.
C The price and quantity relatives of the ice-cream data are
D The price and quantity relatives of the ice-cream data are
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