Purchase Solution

Income and Substitution Effects

Not what you're looking for?

Ask Custom Question

Managers are very interested in how a consumer makes choice among alternatives. In this exercise, we ask you to consider the price of gasoline you may purchase to operate your automobile in any month and any alternatives available to you assuming your net income available to make those purchases. Also assume gasoline prices for your auto rose 100% during one difficult summer as our time period for the purpose of discussion. Explain, then, the following effects in terms of the income effect, or the substitution effect, or both effects:

a. You drove less and purchased less gasoline.

b. You ate out less often.

c. You spent less to maintain your automobile.

d. You took public transportation more often.

e. You bought a bicycle.

f. You did not take a vacation away from home.

g. You bought fewer cloths and made due with more around the home.

Provide a graph to illustrate each effect.

Purchase this Solution

Purchase this Solution

Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.