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I went to Sam's club today to buy engine oil and they had two options. One liter bottles and four liter bottles. I only care
I went to Sam's club today to buy engine oil and they had two options. One liter bottles and four liter bottles. I only care about the total quantity of engine oil I buy. Let X stand for the quantity of one liter bottles and Y for the quantity of four liter bottles. Suppose that the price of one liter bottles of oil is $10 and the price of four liter bottles is $30. I have $60 to spend on engine oil. Suppose that Sam's club announces that it has a special, 40% off on one liter bottles of motor oil. For simplicity assume that I can buy parts of a bottle. What is the total price effect (PE), the substitution effect (SE) and the income effect (IE) on one liter bottles of engine oil? Question 5 options: PE=10; SE=8; IE=2 PE=10; SE=10, IE=0 PE=0; SE=0; IE=0 PE=6; SE=4, IE=2
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