When the price of raisins falls, the quantity of raisins demanded rises. Explain this change in terms of income and substitution effects
What will be an ideal response?
When the price of raisins falls, households have more purchasing power than before. If raisins are a normal good, this means that they will consume more of them. This is the income effect. Also, a decrease in the price of raisins makes raisins relatively less expensive. Thus, households will shift toward purchasing raisins from purchasing relatively more expensive goods. This is the substitution effect. Both effects imply that the quantity of raisins demanded will rise as the price of raisins falls.
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Economist's can justify supporting education through taxation on which of the following grounds?
A) Education generates spillover benefits. B) Low-income people could not otherwise afford education. C) Most economists are educators. D) Free education extends equal opportunity to all. E) Public education is more efficient than allowing education to be provided by the market.
Publications such as Consumer Reports magazine
a. increase the optimal amount of information gathered b. reduce the optimal amount of information gathered c. reduce the amount of common knowledge d. raise the marginal benefit of information curve e. make consumers perfectly informed