dolution

 

1. Fill in the blanks to make the following statements correct.

 

a. The substitution effect is the change in quantity demanded that results from a change in_____, while real income is _____.

 

b. The income effect is the change in quantity demanded that results from a change in _____, while relative prices are _____.

 

c. For a normal good (positive income elasticity of demand) the income and substitution effects of a price increase work in the _____ direction. Each of the two effects will lead to a _____ in quantity demanded.

 

d. For an inferior good (negative income elasticity of demand) the income and substitution effects of a price increase work in ____ directions. The substitution effect will lead to a(n) ____ in quantity demanded and the income effect will lead to a(n) ____ in quantity demanded.

 

e. The total effect on quantity demanded due to a price change is determined by the sum of the ____ effect and the ____ effect. As long as the ____ effect does not outweigh the ____ effect, the demand curve will be downward sloping.