question archive I) Explain how the Substitution and Income Effects are applicable to Consumer Choice Theory
I) Explain how the Substitution and Income Effects are applicable to Consumer Choice Theory
Subject:EconomicsPrice: Bought3
I) Explain how the Substitution and Income Effects are applicable to Consumer Choice Theory.
II) Now let's apply the above to COVID-19:
You have two goods consumed prior to COVID with the same consumed during COVID. Assuming consumer income was $5,000 to spend on these goods before the outbreak but, due to layoffs, has decreased, but still the goods are consumed.
- Show how the budget constraint has been impacted during COVID
- Where the indifference curves are affixed, before and during COVID
- How the income and substitution effects are displayed during COVID
- Finally, let the good/service you label on the horizontal axis represent an "inferior good." Once COVID takes hold, explain how the Indifference Curve and the two effects are explained applied to the inferior good. (Hint: consumption)
