When the price of a normal good falls, the substitution effect leads to ________ in the quantity purchased and the income effect leads to ________ in the quantity purchased.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Question 2
According to one study, the price elasticity of demand for cigarettes is 0.25. To decrease the consumption of cigarettes by 8 percent, a tax on cigarettes must raise the price of cigarettes by
A) 32 percent.
B) 25 percent.
C) 2 percent.
D) 3.1 percent.
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