Figure 17-4

-Refer to Figure 17-4.Which of the following is true at W₂?
A)The income effect is larger than the substitution effect.
B)The substitution effect is larger than the income effect.
C)The income effect and the substitution effect are equal.
D)The supply curve is positively sloped.

Question

Figure 17-4
 
-Refer to Figure 17-4.Which of the following is true at W₂?
A)The income effect is larger than the substitution effect. 
B)The substitution effect is larger than the income effect. 
C)The income effect and the substitution effect are equal. 
D)The supply curve is positively sloped.

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 of the good.

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