Suppose that Ariana consumes two goods, coffee and textbooks. Both are normal goods. Suppose the price of textbooks decreases, while the price of coffee remains unchanged. The income effect by itself suggests that Ariana will consume

Use letters in alphabetical order to select optionsA) Less coffee and fewer textbooks. B) More coffee and more textbooks. C) More coffee and fewer textbooks. D) Less coffee and more textbooks.

Question

Business

Elisabeth Santana

2 April, 13:09

Suppose that Ariana consumes two goods, coffee and textbooks. Both are normal goods. Suppose the price of textbooks decreases, while the price of coffee remains unchanged. The income effect by itself suggests that Ariana will consume

Use letters in alphabetical order to select optionsA) Less coffee and fewer textbooks. B) More coffee and more textbooks. C) More coffee and fewer textbooks. D) Less coffee and more textbooks.

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Answers (1)

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Boyer · Answer 1

The correct answer here would be option D) more of textbooks would be consumed and less of coffee would be consumed.

Explanation:

In economics, substitution effect refers to a situation where there is change in demand of one good in response to the change in price of other goods. Same situation is taking place here as now the price of textbooks have decreased, Ariana will now look to consume more of textbooks and less of coffee.