The French Bakery ran a special which decreased the price of its croissants from $1.50 to $1.00.Although her money income had not changed, Toni decided to buy 2 croissants instead of her usual 1 bagel and 1 croissant.Toni's actions are explained by which of the following?

Question

Quizplus · Accepted Answer

Toni's decision to buy 2 croissants instead of her usual bagel and croissant combination can be explained by both income and substitution effects. The price decrease of croissants made croissants relatively cheaper compared to bagels, leading to the substitution effect. Additionally, the decrease in price also led to an increase in Toni's real income, which allowed her to buy more croissants with the same budget, leading to the income effect. Therefore, both effects played a role in Toni's decision to buy more croissants.

The French Bakery Ran a Special Which Decreased the Price