Question

Lee Sin has a daily income of $50 which he spends on pork and mango. 6...

Lee Sin has a daily income of $50 which he spends on pork and mango. 6 mango cost $3.50 and a package of pork costs $3. Both of these goods are normal for Erika. If the price of pork increases to $4, then the income and substitution effects of this price change on the number of mango he consumes will

a. have the same sign

b. have different signs ?.

c. not enough information

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Answer #1

Ans: option A. same direction

Since it's mentioned that mangoes and pork are normal goods for Lee sin, the price increase in normal goods the income and substitution effect both move in the same direction. The increase in the price of pork will lead to decrease in the quantity demanded because pork is expensive than the Subsitition goods and since the price is higher the consumer has lesser purchasing power and he can consume only less of pork. So both substitution and income effect both moves in the same direction.

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