Answer to Question #305602 in Microeconomics for Julia

Question

If the water bill rises, but the government decides to support families to acvieve the same living standars as before the rise of the water price, what would be the total effect of the price rise into substitution and income effect?

Answer 1

When the water bill rises, consumers consumption of water will change relative to the income since consumers will spend more of their income to settle water bills.

Consumers may be forced to replace government incentives with water bills incase water bill is more expensive than what the government is offering.