36. Refer to the accompanying figure above. Suppose that a consumer is originall

Question

36. Refer to the accompanying figure above. Suppose that a consumer is originally at point R. Then the prnice of good x decreases. Which of the following represents the income effect of the pice decrease? a the movement from point R to point S b the movement from point R to point T c the movement from point T to point S d. None of the above is correct 37 Refer to the accompanying figure above. Suppose that a consumer is originally at point R. Then the price of good X docreases. Which of the following represents the substitution effect of the price decrease? the movement from point R to point S b the movement from point R to point T c the movement from point T to point S d None of the above is correct

Explanation / Answer

36. Option C

37 Option B

Note that the substitution effect encourages consumer to consume more of the product whose price has reduced and consume less of the other good, R to T shows this effect

Income effect raises real income so consumption on both goods increases so that T to S shows income effect.

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