Question 3 Maureen spends her budget on pizza and salad. Suppose that the price of salad increases, as a result, she decreases her consumption on salad. (1) Discuss the substitution effect due to the price increase. Will Maureen consume more or less salads due to the substitution effect? (2) Discuss the income effect due to the price increase. Will Maureen consume more or less salads due to the income effect? Discuss briefly, with max. 5-6 lines for each effect. You can also draw a graph if it helps you.
Question 3 Maureen spends her budget on pizza and salad. Suppose that the price of salad increases, as a result, she decreases her consumption on salad. (1) Discuss the substitution effect due to the price increase. Will Maureen consume more or less salads due to the substitution effect? (2) Discuss the income effect due to the price increase. Will Maureen consume more or less salads due to the income effect? Discuss briefly, with max. 5-6 lines for each effect. You can also draw a graph if it helps you.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 1PA
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Question 3
Maureen spends her budget on pizza and salad. Suppose that the price of salad increases, as a result, she decreases her consumption on salad.
(1) Discuss the substitution effect due to the price increase. Will Maureen consume more or less salads due to the substitution effect?
(2) Discuss the income effect due to the price increase. Will Maureen consume more or less salads due to the income effect?
Discuss briefly, with max. 5-6 lines for each effect. You can also draw a graph if it helps you.
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