Microeconomics Theory] If an individual buys only two goods and these must be used in a fixed relationship with one another (e.g., coffee and cream for a coffee drinker who never varies the amount of cream used in each cup), then a. there is no substitution effect from a change in the price of coffee. b. there is no income effect from a change in the price of coffee. c. Giffen's Paradox must occur if both coffee and cream are inferior goods. d. an increase in income will not affect cream purchases. The answer is A but I don't know why. Thanks!
Microeconomics Theory] If an individual buys only two goods and these must be used in a fixed relationship with one another (e.g., coffee and cream for a coffee drinker who never varies the amount of cream used in each cup), then a. there is no substitution effect from a change in the price of coffee. b. there is no income effect from a change in the price of coffee. c. Giffen's Paradox must occur if both coffee and cream are inferior goods. d. an increase in income will not affect cream purchases. The answer is A but I don't know why. Thanks!
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 5CQQ
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If an individual buys only two goods and these must be used in a fixed relationship with one another (e.g., coffee and cream for a coffee drinker who never varies the amount of cream used in each cup), then
a. there is no substitution effect from a change in the
b. there is no income effect from a change in the price of coffee.
c. Giffen's Paradox must occur if both coffee and cream are inferior goods.
d. an increase in income will not affect cream purchases.
The answer is A but I don't know why. Thanks!
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