Asked by
Marlone Nandjeu
on Oct 14, 2024
Verified
If two goods x and y are perfect complements, then if the price of x falls, the entire change in the demand for x is due to the income effect.
Perfect Complements
Goods that are consumed together in fixed proportions, where the utility of one item increases with the consumption of the other.
Income Effect
The change in consumption that results from a change in real income (purchasing power), holding prices constant, reflecting how higher income increases consumption of goods while lower income reduces it.
- Dissect the impact of price variations upon consumer demand, paying close attention to substitution and income effects.
- Acknowledge the impact of income and price adjustments on the selection of consumption bundles across various preference scenarios (strictly convex, perfect substitutes, and perfect complements).
Verified Answer
TS
Learning Objectives
- Dissect the impact of price variations upon consumer demand, paying close attention to substitution and income effects.
- Acknowledge the impact of income and price adjustments on the selection of consumption bundles across various preference scenarios (strictly convex, perfect substitutes, and perfect complements).