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Fact 9.3.2 Hamptons Glamour Finds a Humbler Home
Lucy Martin collected and sold vintage clothing in the wealthy Hamptons,but in the recession of 2008,her sales fell.She eventually moved her shop to Tannersville,N.Y. ,where her expenses are 70 percent less than they were in the Hamptons.
Source: The New York Times,December 22,2016
-Refer to Fact 9.3.2.If the price of vintage clothing falls and income remains the same,the substitution effect ________ the quantity of used clothing bought and the income effect ________ the quantity of used clothing bought.
A)increases;decreases
B)increases;increases
C)decreases;increases
D)decreases;decreases
E)does not change;increases

Question

Quizplus · Accepted Answer

The substitution effect increases the quantity of used clothing bought because as the price of vintage clothing falls, it becomes relatively cheaper compared to other goods, leading consumers to substitute towards it. The income effect also increases the quantity of used clothing bought because the fall in price effectively increases consumers' purchasing power, allowing them to buy more for the same amount of money.

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