Question: Suppose there is a 10 percent increase in the prices of the following products. Keeping in mind how large a fraction of a typical consumer's

Suppose there is a 10 percent increase in the prices of the following products. Keeping in mind how large a fraction of a typical consumer's budget these items are, explain whether you think the income effect in each case would be small or large, and why.

a. Salt

b. Jeans
c. Canned vegetables
d. Gasoline
e. Mini-vans
f. Rental apartments
g. Luxury cars
h. Cell phones
i. Vacations to Cuba
j. Fee for one-day car rentals

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a Since salt is a very small element in most peoples consumption bundle the income effect is likely to be very small such that a 10 increase in price should have very little effect on the quantity dem... View full answer

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