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 $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 6 times as strong as the substitution effect.
B)does not change the demand for good 1.
C)accounts for the entire change in demand.
D)is exactly twice as strong as the substitution effect.
E)is 5 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. Therefore, any change in demand due to a price change is entirely due to the income effect, as there is no substitution effect when goods are perfect complements.

Goods 1 and 2 Are Perfect Complements and a Consumer