Microeconomics Theory] If an individual buys only two goods and these must be used in a fixed relationship with one another (e.g., coffee and cream for a coffee drinker who never varies the amount of cream used in each cup), then a. there is no substitution effect from a change in the price of coffee. b. there is no income effect from a change in the price of coffee. c. Giffen's Paradox must occur if both coffee and cream are inferior goods. d. an increase in income will not affect cream purchases. The answer is A but I don't know why. Thanks!
Microeconomics Theory] If an individual buys only two goods and these must be used in a fixed relationship with one another (e.g., coffee and cream for a coffee drinker who never varies the amount of cream used in each cup), then a. there is no substitution effect from a change in the price of coffee. b. there is no income effect from a change in the price of coffee. c. Giffen's Paradox must occur if both coffee and cream are inferior goods. d. an increase in income will not affect cream purchases. The answer is A but I don't know why. Thanks!
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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If an individual buys only two goods and these must be used in a fixed relationship with one another (e.g., coffee and cream for a coffee drinker who never varies the amount of cream used in each cup), then
a. there is no substitution effect from a change in the
b. there is no income effect from a change in the price of coffee.
c. Giffen's Paradox must occur if both coffee and cream are inferior goods.
d. an increase in income will not affect cream purchases.
The answer is A but I don't know why. Thanks!
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