Neville, in Problem 2, Has a Friend Named Oswald

Neville, in Problem 2, has a friend named Oswald. Oswald has the same demand function for claret as Neville, namely q = .02m - 2p, where m is income and p is price. Oswald's income is $5,500 and he initially had to pay a price of $40 per bottle of claret. The price of claret rose to $70. The substitution effect of the price change

A) reduced his demand by 42.
B) reduced his demand by 60.
C) increased his demand by 60.
D) reduced his demand by 78.
E) reduced his demand by 52.

Correct Answer:

Verified

Show Answer