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 $9 per unit,
A)the income effect of the change in demand for delphiniums will be bigger than the substitution effect.
B)1/4 of the change in demand will be due to the income effect.
C)there will be no change in the demand for hollyhocks.
D)the entire change in demand for delphiniums will be due to the substitution effect.
E)3/4 of the change in demand will be due to the income effect.

Question

Quizplus · Accepted Answer

Since delphiniums and hollyhocks are perfect substitutes, consumers will switch to the cheaper option if the price of one increases. Therefore, the entire change in demand for delphiniums will be due to the substitution effect. There will be no change in the demand for hollyhocks since they are not affected by the change in price of the other product. Income effect is not relevant in this case.

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