Suppose that Jim uses his budget to purchase 100 units of Good X and 100 units of Good Y. When the price of Good X rises, he purchases 70 units of Good X and 95 units of Good Y. An economist calculates his compensated budget and finds that in that scenario, Jim would buy 80 units of Good X and 105 units of Good Y. Calculate the substitution effect. (Remember to include a negative sign (-) if the effect reduces the quantity.)
Suppose that Jim uses his budget to purchase 100 units of Good X and 100 units of Good Y. When the price of Good X rises, he purchases 70 units of Good X and 95 units of Good Y. An economist calculates his compensated budget and finds that in that scenario, Jim would buy 80 units of Good X and 105 units of Good Y. Calculate the substitution effect. (Remember to include a negative sign (-) if the effect reduces the quantity.)
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 24SQ
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05- Income and Substitution Effects
Question 2
Transcribed Image Text:Suppose that Jim uses his budget to purchase 100 units of Good X and 100 units of Good Y. When the
price of Good X rises, he purchases 70 units of Good X and 95 units of Good Y. An economist calculates
his compensated budget and finds that in that scenario, Jim would buy 80 units of Good X and 105 units of
Good Y.
Calculate the substitution effect.
(Remember to include a negative sign (-) if the effect reduces the quantity.)
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