Suppose you spend all of your income on apples and oranges, which are both normalgoods and which are imperfect substitutes. If the price of apples increases, will youconsume more or fewer apples as a result of the substitution effect? What about theincome effect?

Question

Julie Stevenson

Business

10 September, 01:37

Suppose you spend all of your income on apples and oranges, which are both normalgoods and which are imperfect substitutes. If the price of apples increases, will youconsume more or fewer apples as a result of the substitution effect? What about theincome effect?

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Answers (1)

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Hadley Irwin · Answer 1

As a result of the substitution effect you would consume less apples and more oranges, but as income effect, you would consume less of both.

This is because income effect takes place as a reduction of total income