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The following are correct statements about the Income Effect (IE) and Substitution Effect (SE) coming from an increase in Px, EXCEPT: Question 12 options: I.E.
The following are correct statements about the Income Effect (IE) and Substitution Effect (SE) coming from an increase in Px, EXCEPT: Question 12 options: I.E. is the result of a decline in Purchasing Power on consumers coming from an increase in Px. S.E. is the result of the substitution coming from a change in relatives prices between alternative goods (x,y). If two goods are close substitutes, then SE is stronger than IE. If two goods are close substitutes, then Income Effect is Zero
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