With a temporary change in technology, A, we expect little change in consumption because:
A)the income effect on consumption is larger.
B)the income effect on consumption is smaller.
C)the intertemporal-substitution effect is larger.
D)the intertemporal-substitution effect is smaller.

Question

Quizplus · Accepted Answer

With a temporary change in technology, the income effect on consumption is smaller compared to the intertemporal-substitution effect. This is because the temporary change in technology does not affect the consumer's long-term income but rather their ability to consume the good in the short-term. Therefore, the intertemporal-substitution effect, which refers to substituting consumption between different time periods based on their relative prices, is larger than the income effect. As a result, we expect little change in consumption.

With a Temporary Change in Technology, A, We Expect Little