Answered: Cindy consumes goods x and y. Her…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter20: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 3CQ: Recent research confirms that the demand for cigarettes is not only inelastic, but it also indicates...

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Cindy consumes goods x and y. Her demand for x is given by x(px, m) =0.05m −5.15px. Now her income is $419, the price of x is $3, and the price of y is $1. If the price of x rises to $4 and if we denote the income effect on her demand for x by DI and the substitution effect on her demand for x by DS, then

Please explain how the income and substitution effects are derived for Cindy.

a DI = −0.28 and DS = −0.52.

b DI = −0.28 and DS = −4.88.

c DI = −0.52 and DS = −0.52.

d DI = 0 and DS = −2.00.

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