Refer to the figure at right. Starting from point A, after the price of food decreases, the quantity of food purchased Clothing (units per month) A. increases from A to B due to the income effect, and then to C due to the substitution effect. D B. increases due to the substitution effect, but decreases due to the income effect. OC. decreases. O D. increases due to the income effect, but decreases due to the substitution effect. F2E Food (units per month) F1
Refer to the figure at right. Starting from point A, after the price of food decreases, the quantity of food purchased Clothing (units per month) A. increases from A to B due to the income effect, and then to C due to the substitution effect. D B. increases due to the substitution effect, but decreases due to the income effect. OC. decreases. O D. increases due to the income effect, but decreases due to the substitution effect. F2E Food (units per month) F1
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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As we know change sin price lead to change in quantity demanded but this price effect can be decomposed into two 1. Substitution effect and 2 . Income effect .
Price effect = substitution effect+ income effect.
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