Suppose that the price of cola rises to $3.00 a can and the price of popcorn and
Question:
Suppose that the price of cola rises to $3.00 a can and the price of popcorn and Sara’s income remain the same.
a. What is the substitution effect of this price change and what is the income effect of the price change?
b. Is cola a normal good or an inferior good?
Explain.
Sara’s income is $12 a week. The price of popcorn is $3 a bag, and the price of cola is $1.50 a can. The figure shows Sara’s preference map for popcorn and cola.
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Step by Step Answer:
Lets analyze the question step by step First lets understand the scenario with Saras budget and preferences Initially Sara has 12 a week to spend on c...View the full answer
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