Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. At current prices, she makes her best affordable choice and purchases 20 songs and 4 applications. Suppose, for a limited time only, applications are buy-one, get-one-free and she purchases 30 songs and 4 applications. Which of the following statements is TRUE?
A) For songs, the substitution effect just equals the income effect.
B) For songs, the income effect is stronger than the income effect for applications.
C) For applications, the substitution effect is stronger than the income effect.
D) For applications, the income effect is stronger the income effect for songs.
Correct Answer:
Verified
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