Question
Suppose consumer J has a weekly income of $ 200 that spend on food, clothing and lodging. The average price of food is $ 2,
Suppose consumer J has a weekly income of $ 200 that spend on food, clothing and lodging. The average price of food is $ 2, clothing is $ 10 and accommodation is $ 50. At these prices the consumer J buys weekly: 50 units of food, 5 units of clothes and 1 accommodation units. Suppose the price of the food decreases to $ 1.50. 1. If consumer J continues to buy the same quantities of the three goods, how much would you spend? How I know call that effect? 3 2. What would be your prediction about the amount of food that consumer J will consume at this new price of $ 1.50 per unit of meal? How is this effect known?
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