Which of the following is the most likely example of a good for which the income and substitution effects of price increase would be in the opposing directions?

a. laptop computers

b.tickets to NFL football games

c.fast food meals

d.vacation travel

Solutions

Expert Solution

The correct answer is "option c".

c. fast food meals

For an inferior good the income and the substitution effect work in opposing directions. In the given question fast food meals are the only inferior good. When the price of fast food meals falls the substitution effect the consumer would want to buy more of it but the income effect would tend the consumer to buy less fast food meals.

Rahul Sunny answered 1 year ago

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