Goods 1 and 2 are perfect complements, and a consumer always consumes them in the ratio of 2 units of good 2 per unit of good 1.If a consumer has an income of $200 and if the price of good 2 changes from $4 to $5, while the price of good 1 stays at $1, then the income effect of the price change
A)does not change demand for good 1.
B)is exactly twice as strong as the substitution effect.
C)is 5 times as strong as the substitution effect.
D)accounts for the entire change in demand.
E)is 4 times as strong as the substitution effect.

Question

Quizplus · Accepted Answer

Since goods 1 and 2 are perfect complements, the consumer will always consume them in a fixed ratio. The entire change in demand is due to the income effect because there is no substitution effect when goods are perfect complements.

Goods 1 and 2 Are Perfect Complements, and a Consumer