If technology, A, increases permanently then we would expect:
A)consumption to decrease as the substitution effect would be greater than the income effect of the change.
B)consumption to increase as the income effect would be greater than the substitution effect of the change.
C)consumption to increase as the substitution effect would be greater than the income effect of the change.
D)consumption to decrease as the income effect would be greater than the substitution effect of the change.

Question

Quizplus · Accepted Answer

When technology improves, it typically leads to increased productivity, which in turn raises income levels. As incomes rise, people can afford to consume more, indicating that the income effect (which leads to increased consumption due to higher income) outweighs the substitution effect (which might lead to changes in consumption patterns between goods due to changes in relative prices).

If Technology, A, Increases Permanently Then We Would Expect