Question 3 Maureen spends her budget on pizza and salad. Suppose that the price of salad increases, as a result, she decreases her consumption on salad. (1) Discuss the substitution effect due to the price increase. Will Maureen consume more or less salads due to the substitution effect? (2) Discuss the income effect due to the price increase. Will Maureen consume more or less salads due to the income effect? Discuss briefly, with max. 5-6 lines for each effect. You can also draw a graph if it helps you.

Question 3 Maureen spends her budget on pizza and salad. Suppose that the price of salad increases, as a result, she decreases her consumption on salad. (1) Discuss the substitution effect due to the price increase. Will Maureen consume more or less salads due to the substitution effect? (2) Discuss the income effect due to the price increase. Will Maureen consume more or less salads due to the income effect? Discuss briefly, with max. 5-6 lines for each effect. You can also draw a graph if it helps you.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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