Multiple Choice
Cindy consumes goods x and y. Her demand for x is given by x(px, m) = 0.04m -4.24px. Now her income is $322, the price of x is $2, and the price of y is $1. If the price of x rises to $3 and if we denote the income effect on her demand for x by DI and the substitution effect on her demand for x by DS, then
A) DI = 0 and DS = -2.00.
B) DI = -0.18 and DS = -0.52.
C) DI = -0.52 and DS = -0.52.
D) DI = -0.18 and DS = -4.06.
E) None of the above.
Correct Answer:
Verified
Correct Answer:
Verified
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