Asked Sep 28, 2019

(In this question we denote income by Y, not by W as in the lecture notes). The following figure shows the consumption of x and y for two market situations.

The income effect of a change in price of x from px to px’ is?

Negative and is dominated by the substitution effect.

Positive and reinforces the substitution effect.

Negative and dominates the substitution effect.

Negative and reinforces the substitution effect.

Positive and dominates the substitution effect.


Image Transcriptionclose

Y Py (2,2)


Expert Answer

Step 1

The correct alternative is Negative and dominates the substitution effect.

Step 2

To determine: Income effect of a change in price of good x from Px to P’x.

Step 3

Here, “x” is the initial combination of good x and as the price of good x declines, the budget line will shift outwards from Y/Py to Y/Px. Furthermore, now indifference curve will shift to the...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in




Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A

Q: Use for questions 1 -2: Selecting the appropriate level of aircraft skin forming machines: The A-1 C...

A: With the following information the table can be completed:Average Product= Number of Panels Produced...


Q: Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as belo...

A: d.The equilibrium price and quantity in the market can be calculated at the intersection of the dema...


Q: marginal willingness to pay for pollution abatement, A, for each consumer class. (Abatement is reduc...

A: (a) Given that marginal willingness to pay by the polluter from region O is  13-Q where marginal wil...


Q: Hi, can I get help with this question I'm not sure what to choose? I'm confused base on the graph an...

A: The correct option is A.


Q: Do I have this queshtion right I think its positive. I'm not sure if I'm correct.

A:   Economic growth.From the given graph, if these countries have gross government debt is excess of 8...


Q: (Use for Questions 4-6): The Ulysses Corporation and the Xenophon Company are the only producers of ...

A: The payoff matric is given below:


Q: Vilfredo has complete and transitive preferences on cars. We know that he prefers a Hyundai Sonata t...

A: Completeness of preferences mean that if a person is making a choice between two or more goods then ...


Q: Which of the following statements regarding marginal analysis is​ true?     A. If total cost is...

A: To sum up, marginal analysis is described as the cost of identifying the level of output at an addit...


Q: 14 If the price elasticity of demand of for gasoline is 1.8, then a 15% decrease in quantity demande...

A: Price elasticity of demand (PED or Ed) shows the responsiveness or elasticity about the quantity dem...