Figure 12.4 -Refer to Figure 12.4.Which of the following is true at W₀? 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

Quizplus · Accepted Answer

The substitution effect is larger than the income effect at W₀, indicating that the change in quantity demanded due to a change in price (making the good relatively cheaper or more expensive compared to others) is greater than the change in quantity demanded due to a change in consumer's purchasing power.

Figure 12.4 -Refer to Figure 12.4.Which of the Following Is True at Is