Answer to Question #67106 in Microeconomics for Arsal

Question

The Price of food increased during the past year.
a. Explain why the law of demand applies to ood just as it does to other goods and services.
b. Eplain how the substitution effecct infues foodpurchase when the price of food rises and other things remain the same.
c. Explain how the income effect influences food purchases and provide some examples of the income effect.

Answer 1

The Price of food increased during the past year.
a. According to the law of demand the quantity of food demanded will decrease.
b. According to the substitution effect consumers will by less food and more other goods, which are close substitutes.
c. According to the income effect the consumer can afford less food as the income is the same.