65 852
Assignments Done
99,1%
Successfully Done
In October 2018

# Answer to Question #51329 in Microeconomics for dan

Question #51329
Stella is an 8 year old that gets a monthly allowance of $10 from her parents. There are only two things that Stella likes to spend her allowance on: chocolate bars and packages of stickers. Assume that initially chocolate bars cost$1 each and packages of stickers cost $2 each. Suppose that as a result of the price change, the substitution effect caused Stella to increase her chocolate consumption by 4 chocolate bars. How big is the income effect? Can you say whether Stella considers chocolate bars to be a normal or an inferior good? Explain. Expert's answer Stella gets a monthly allowance of$10. Pch = $1, Pps =$2.&nbsp;If as a result of the price change, the substitution effect caused Stella to increase her chocolate consumption by 4 chocolate bars, the income effect will be zero, because the change in consumption was only according to the substitution effect. We can&#039;t say whether Stella considers chocolate bars to be a normal or an inferior good, because we don&#039;t know the direction of the price change (increase or decrease). If&nbsp;the price decreased, then it is a normal good.

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!