Explore BrainMass
Share

Explore BrainMass

    consumer choice options

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Stakeholders are interested in how consumers make choice among options. Considering the price of gas consumers may purchase to operate a car in any month any any choice availible assuming the net income is open from the consumer to make the purchase. Assume gas prices for the car rose 100% during the summer the decision was to be made to purchase the car. Can you help explain the effects in terms of income effect or the subsitution effect or both effects? Can you help me with graphs per each noted item below?

    * Consumer drove less and purchased less gas
    *Consumer ate out less often
    *Consumer spent less to maintain the car
    *Consumer took bus or public transp. more often
    *Consumer purchased a bike
    *Consumer decied not to take a holiday away from home
    *Consumer purchased less clothes and made due around the house

    © BrainMass Inc. brainmass.com October 10, 2019, 1:38 am ad1c9bdddf
    https://brainmass.com/economics/utility-demand/consumer-choice-options-342501

    Solution Preview

    Need assistance with consumer choice options on purchasing a car.

    Stakeholders are interested in how consumers make choice among options. Considering the price of gas consumers may purchase to operate a car in any month any choice available assuming the net income is open from the consumer to make the purchase. Assume gas prices for the car rose 100% during the summer the decision was to be made to purchase the car. Can you help explain the effects in terms of income effect or the substitution effect or both effects? Can you help me with graphs per each noted item below?

    * Consumer drove less and purchased less gas
    *Consumer ate out less often
    *Consumer spent less to maintain the car
    *Consumer took bus or public transportation more often
    *Consumer purchased a bike
    *Consumer decided not to take a holiday away from home
    *Consumer purchased less clothes and made due around the house

    --------------------------------------------------------------------------------------------------------------

    The substitution effect - the consumer always favors lower priced goods. If the price of Good A rises, the consumer will buy less of Good A and more of a substitute good such as Good B. Conversely, if the price of Good A falls, the substitution effect leads the consumer to buy more of A which is now less expensive compared to Good B that has a constant price.

    The income effect - with a change in the price of a good, the consumer's purchasing power changes. If a good's price drops, the consumer pays less to purchase the good than at the original price. If the good is a normal good, the consumer buys more of the good due to the income effect.

    Overall, with a change in the price of a good, consumption of the good responds due to a combination of the substitution and income effects.

    The demand curve for gas ...

    Solution Summary

    This solution exemplifies consumer choice options.

    $2.19