Goods 1 and 2 are perfect complements and a consumer always consumes them in the ratio of 2 units of good 2 to 1 unit of good 1.If a consumer has an income of $120 and if the price of good 2 changes from $3 to $4, while the price of good 1 stays at $1, then the income effect of the price change
A)is 4 times as strong as the substitution effect.
B)does not change the demand for good 1.
C)is exactly twice as strong as the substitution effect.
D)accounts for the entire change in demand.
E)is 3 times as strong as the substitution effect.

Question

Quizplus · Accepted Answer

For perfect complements, the substitution effect is zero because the consumer always consumes the goods in a fixed ratio. Therefore, any change in demand due to a price change is entirely due to the income effect.

Goods 1 and 2 Are Perfect Complements and a Consumer