Question 24 Not yet answered Points out of 1 P Rag question Figure: Water and El

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Question 24 Not yet answered Points out of 1 P Rag question Figure: Water and Electricity 2 Water (gallons/hour) 16 14 12 10 46 8 10 12 14 16 Electricity (MJhour Rerence: Ref 25-14 Figure: Water and Electricity 2) Refer to the figure. ith price of electricty changed and the price of water stayed th to the figure. If the price of electricity changed and the price of water stayed the same, causing the change in the budget constraint as indicated by the dashed line, did an income effect play a role in the change in this person's consumption bundle? Select one a No. because the new consumption point has less water, not more b. No, because the new consumption point is on the same indifference curve. es, because there was a change in relative prices d. Yes, because after keeping utility constant this person still buys more electricty lc.Ye

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ANSWER:

The correct answer is option d as the person's satisfaction remains the same due to marginal utility remaining the same and therefore the person will buy more electricity as due to income effect he will have more money to spent upon.

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