Sue consumes only sandwiches and soda and is at her best affordable point. The price of a sandwich falls. The substitution effect is that Sue substitutes ________ for ________. The income effect is that Sue ________.

Question

Quizplus · Accepted Answer

The substitution effect occurs when a price change makes a good relatively cheaper, leading Sue to substitute sandwiches for soda. The income effect, due to the lower price, increases her real income, allowing her to buy more of both goods if they are normal goods.

Sue Consumes Only Sandwiches and Soda and Is at Her