Question 5 of 6 Map Deb pling The graph below shows the consumption of cotton ca

Question

Question 5 of 6 Map Deb pling The graph below shows the consumption of cotton candy and mini-cookies consumed by Robert. Identify the income and substitution effects after a price decrease in mini-cookies. Point A is the initial consumption, and point B is the consumption after the price change. Point C is on the line that is parallel to the original budget constraint but on the new indifference curve. The substitution effect is: The income effect is: Q cotton candy O C to B O C to B 10 O B to A O C to A O B to C O B to A. O A to C O A to C O C to A O B to C O A to B O A to B 1 2 3 5 6 9 10 Q of mini-cookies A O Previous ® Give Up & View Solution Check Answer Next Ext Hint

Explanation / Answer

The income effect is A to B, as the prices of mini cookies decrease Robert consumes more of them and even more of cotton candy with the remaining income of his.

The substitution effect is A to C, as Robert consumes more of cotton candy with the remaining income, but the same amount of mini cookies.

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