Hours of free time per day A consumer who has a fixed income

Hours of free time per day A consumer, who has a fixed income in dollars, consumes petrol and bread. Suppose that demand for each good increases with income. When the price of petrol increases: 7. The substitution effect on the consumption of petrol is positive, as the consumer would have to increase his expenditure on petrol due to its higher price. a.

Solution

False. The substitution effect is negative. Consumer will consume less because petrol became costly

B true. Due to pincome change he will consume more as his real income falls

C true. Due to higher income more bread will be purchased

D true. Due to rise in income more good will be purchased than due to fall due to rise in prices