During October and November 2008, gasoline prices were falling dramatically making travel by car less expensive but air travel prices were as high as ever. If travel by car is less expensive, and income remains the same, describe the substitution and income effects that occur for air travel.
A) If air travel is a normal good, the substitution effect would cause an increase and the income effect would cause a decrease in air travel.
B) If air travel is a normal good, both the substitution and income effects would cause a decrease in air travel.
C) If air travel is a normal good, the substitution effect would cause a decrease and the income effect would cause an increase in air travel.
D) If air travel is a normal good, both the substitution and income effects would be cause an increase in air travel.
Correct Answer:
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