If you are given a budget line shown as 7BL2 and the price of food is PHP 10 per unit while the price of clothes is PHP 20 per unit, consumer income is PHP 150. If the budget line pivots to 7BL1, the price of food will decrease to PHP 8 per unit. If the price of food decreases, the increase in the consumption of food consumption is due to the income effect that enables consumers less of clothes in exchange for more food and the substitution effect that enables the individual to consume more food and more clothes.

If you are given a budget line shown as 7BL2 and the price of food is PHP 10 per unit while the price of clothes is PHP 20 per unit, consumer income is PHP 150. If the budget line pivots to 7BL1, the price of food will decrease to PHP 8 per unit. If the price of food decreases, the increase in the consumption of food consumption is due to the income effect that enables consumers less of clothes in exchange for more food and the substitution effect that enables the individual to consume more food and more clothes.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter10: Consumer Choice Theory

Section: Chapter Questions

Problem 8P

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