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The following data pertain to products A and B, both of which are purchased by Madame X. Initially, the prices of the products and quantities consumed are:

            PA = $10, QA = 3, PB = $10, QB = 7.

Madame X has $100 to spend per time period. After a reduction in price of B, the prices and quantities consumed are:

            PA = $10, QA = 2.5, PB = $5, QB = 15.

Assume that Madame X maximizes utility under both price conditions above. Also, note that if after the price reduction enough income were taken away from Madame X to put her back on the original indifference curve, she would consume this combination of A and B:

            QA = 1.5,    QB = 9

1) The change in consumption of good B due to the substitution effect is ____________ and the change in consumption of good B due to the income effect is________ .

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M91711363

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