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substitution effect: Suppose the price of sausage doubles, the substitution effect will lead her to buy the quantity of cheese 15 V times that of sausage. This means that following the substitution effect, she will buy 7.92 units of cheese and 5.28 V units of sausage. Thus, due to the substitution effect, the change in the amount of cheese is 192 units, and the change in the amount of sausage is -2.72 V units. On the other hand, following the net effect, she will consume 4.29 V units of cheese and 286 units of sausage. This means that the net change in the amount of cheese is 171 units and the net change in the amount c sausage is 514 units. Due to the income effect, the change in the amount of cheese is -363 and the change in the amount of sausage is 2.42

substitution effect: Suppose the price of sausage doubles, the substitution effect will lead her to buy the quantity of cheese 15 V times that of sausage. This means that following the substitution effect, she will buy 7.92 units of cheese and 5.28 V units of sausage. Thus, due to the substitution effect, the change in the amount of cheese is 192 units, and the change in the amount of sausage is -2.72 V units. On the other hand, following the net effect, she will consume 4.29 V units of cheese and 286 units of sausage. This means that the net change in the amount of cheese is 171 units and the net change in the amount c sausage is 514 units. Due to the income effect, the change in the amount of cheese is -363 and the change in the amount of sausage is 2.42

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Solve the problem below given that before price increase: price of cheese = 10 quantity of cheese = 6 price of sausage = 5 quantity of sausage = 8 income per week = 100 Determine if the values in the box is correct or not and defend your answer using solutions.
substitution effect: Suppose the price of sausage doubles, the substitution effect will lead her to buy the quantity of cheese 15 times that of sausage. This means that following the substitution effect, she will buy 7.92 units of cheese and 5.28 V units of sausage. Thus, due to the substitution effect, the change in the amount of cheese is 192 units, and the change in the amount of sausage is -2.72 V units. On the other hand, following the net effect, she will consume 4.29 Munits of cheese and 286 units of sausage. This means that the net change in the amount of cheese is 1.71 units and the net change in the amount of 544 Saesnes units, Due to the income effect, the change in the amount of cheese is -363 and the change in the amount of sausage is 2.42
Transcribed Image Text:substitution effect: Suppose the price of sausage doubles, the substitution effect will lead her to buy the quantity of cheese 15 times that of sausage. This means that following the substitution effect, she will buy 7.92 units of cheese and 5.28 V units of sausage. Thus, due to the substitution effect, the change in the amount of cheese is 192 units, and the change in the amount of sausage is -2.72 V units. On the other hand, following the net effect, she will consume 4.29 Munits of cheese and 286 units of sausage. This means that the net change in the amount of cheese is 1.71 units and the net change in the amount of 544 Saesnes units, Due to the income effect, the change in the amount of cheese is -363 and the change in the amount of sausage is 2.42
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