income effect or the substitution effect
Not what you're looking for?
Managers are very interested in how a consumer makes choice among alternatives.
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.
Assume gasoline prices for your auto rose 100% during one difficult summer as our time period for the purpose of discussion.
Explain, 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.
Purchase this Solution
Solution Summary
The income effect and the substitution effect are considered.
Solution Preview
Dear Student,
Thank you for using BM.
Below are my answers.
ANSWERS
a.You drove less and purchased less gasoline.
Since the price of gasoline increased, then my real income also decreased. Driving less and purchasing less gasoline is an income effect as my preferences as to driving have to be adjusted due to the decrease in my real income.
b.You ate out less ...
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.
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.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.