2. Income and substitution effects Manuel is an accountant who enjoys apples and pears. Suppose that the price of apples increases. As a result, even though Manuel purchases fewer apples, he actually purchases more pears than he would have before the price change. This phenomenon is known as the effect.
2. Income and substitution effects Manuel is an accountant who enjoys apples and pears. Suppose that the price of apples increases. As a result, even though Manuel purchases fewer apples, he actually purchases more pears than he would have before the price change. This phenomenon is known as the effect.
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 6QR
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An alteration in price of a given product creates two effects : substitution and income effects on its demand. This is because a price change not only motivates an individual to substitute his/her current consumption bundle but also make a change in his/her real income.
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