Maude thinks delphiniums and hollyhocks are perfect substitutes, one for one. If delphiniums currently cost $5 per unit and hollyhocks cost $6 per unit and if the price of delphiniums rises to $8 per unit,

Question

Quizplus · Accepted Answer

According to the substitution effect, when the price of one good increases, consumers switch to a cheaper substitute good. Here, since delphiniums and hollyhocks are considered perfect substitutes, the entire change in demand for delphiniums will be due to the substitution effect. There will be no change in the demand for hollyhocks, as consumers will not switch to a more expensive alternative when a cheaper alternative is available. The income effect is irrelevant in this scenario because it measures the change in demand due to a change in income, not price.

Maude Thinks Delphiniums and Hollyhocks Are Perfect Substitutes, One for One