IN January MR.Z HAD 100$ TO SPEND .THE cost OF A WAS 1$, WHILE COST of B $2. MR. Z BOUGHT 30 B AND 40 A...IN February MR.Z HAD AGAIN 100$ TO SPEND. Good B STILL COST 2$ AND A COST 1.25$.MR. Z CONSUME 30 OF B and 32 of A.
Q 1) the substitution effect of this price change would make him buy (less,more,same amount )of A .... And (less, more, same amount) of B. how it will be solved??
Q 2) since it is true and the total change in his B 's consumption was zero, it must be that the income effect of this price change on his consumption of B makes him buy (less,more,same amount ) of B.how to solve
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plz ans this question........any one plz help
Q1 less and more
The price rise of A will shift rightward the demand curve of B. So quantity demanded of B should be increased given the same price of B.
Because A has substitute good B. So generally, A's is price elastic. That means when A's price goes up, total spending on A will decrease. So quantity demanded of A will decrease given A's price goes up.
Income effect should make him choose the opposite to keep the consumption of B to keep unchanged.
what i think is
q1 less and same
as ....demand of B is a vertical line ....i.e whether there is a price change....there is no change is it's demand.....
and for A it has downward sloping ...