Homework Sourse6 Assume that yogurt is a normal good If the price of yogurt
6. Assume that yogurt is a normal good. If the price of yogurt rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.
| more, more |
Solution
The correct option is LESS, LESS.
Explanation:
The effect is negative since it is now more expensive to buy yogurt.
Thus, the substitutes effect results in the person buying LESS the good( yogurt).
The income effect result in the person buying LESS of the good.because the real purchasing power has decreased and since yogurt is a normal good, the decrease in purchasing power will lead to a decrease in the quantity of yogurt.
