Scenario 7-1 Use the information below to answer the following question(s).
JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a key ingredient used to produce cola, falls.
Refer to Scenario 7-1. According to the substitution effect, which of the following is most likely to occur?
A) JoAnn will purchase less cola and more sparkling water.
B) JoAnn will purchase more cola and less sparkling water.
C) JoAnn will purchase more of all goods due to her higher real income.
D) JoAnn's demand curve will decrease (shift in), causing her to purchase less cola.

Question

Quizplus · Accepted Answer

When the price of sugar falls, the cost of producing cola decreases, leading to a lower price for cola. As cola and sparkling water are substitutes, JoAnn is likely to purchase more cola and less sparkling water due to the substitution effect.

Scenario 7-1 Use the Information Below to Answer the Following