Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes. Which of the following can we infer? a. The substitution effect outweighs the income effect. b. The income effect just offsets the substitution effect. c. The income effect is negative and reinforces the substitution effect. d. The income effect is positive and exceeds the substitution effect. e. The income effect is negative and outweighs the substitution effect.
Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes. Which of the following can we infer? a. The substitution effect outweighs the income effect. b. The income effect just offsets the substitution effect. c. The income effect is negative and reinforces the substitution effect. d. The income effect is positive and exceeds the substitution effect. e. The income effect is negative and outweighs the substitution effect.
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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Q42
Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes. Which of the following can we infer?
a.
The substitution effect outweighs the income effect.
b.
The income effect just offsets the substitution effect.
c.
The income effect is negative and reinforces the substitution effect.
d.
The income effect is positive and exceeds the substitution effect.
e.
The income effect is negative and outweighs the substitution effect.
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