Author Question: Suppose you drink more tea because the price of coffee has increased. Which of the following best ... (Read 7 times)

joe · **on:** Jul 1, 2018

Suppose you drink more tea because the price of coffee has increased. Which of the following best explains your action?
a. the law of supply
b. tea and coffee are complements
c. the substitution effect
d. the income effect
e. your nominal income has increased

Question 2

Which of the following statements about the substitution effect of a price change is true?
a. It is caused by a change in relative prices.
b. It affects the consumer's ability, rather than willingness, to purchase a good.
c. It assumes that the consumer substitutes more expensive goods for cheaper ones when income increases.
d. It is usually equal to the income effect.
e. It may cause the consumer to buy less of the good when its price falls.