Figure 17-4 -Refer to Figure 17-4. Which of the following is true at W₂?

Question

Quizplus · Accepted Answer

The income effect is larger than the substitution effect at W₂ because the price of the good has increased, making consumers worse off. This leads to a decrease in the quantity demanded, which is the income effect. The substitution effect, on the other hand, is positive because the price of the good has increased relative to other goods, making it more expensive. This leads to a decrease in the quantity demanded of the good, which is the substitution effect. However, the income effect is larger than the substitution effect at W₂ because the price increase has made consumers worse off.

Figure 17-4 -Refer to Figure 17-4. Which of the Following Is True