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    Income effects and substitution effects

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    After Iraq invaded Kuwait, gasoline prices rose dramatically--up to 50%. There were many effectrs of the increased price of gasoline. Explain the following effects in terms of the income effect, substitution effect, or both effects:
    a. people drove less and purchased less gas
    b. people ate out less often
    c. people had more tune-ups done on their cars
    d. bike sales went up
    e. the sale of lottery tickets fell
    f. people took vacations closer to home.

    © BrainMass Inc. brainmass.com April 3, 2020, 5:31 pm ad1c9bdddf
    https://brainmass.com/economics/income-distribution/income-effects-and-substitution-effects-164461

    Solution Preview

    a. people drove less and purchased less gas
    Income effect - people could afford less money to purchase gas because the prices shot up
    b. people ate out less often
    Income effect - Because there was less money left for other things, people ...

    Solution Summary

    Income effects and substitution effects are considered.

    $2.19

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