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 $300 and if the price of good 2 changes from $5 to $6, while the price of good 1 stays at $1, then the income effect of the price change
A)is exactly twice as strong as the substitution effect.
B)accounts for the entire change in demand.
C)does not change demand for good 1.
D)is 6 times as strong as the substitution effect.
E)is 5 times as strong as the substitution effect.

Question

Quizplus · Accepted Answer

For perfect complements, the substitution effect is zero because the consumer will always consume 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