Nicanor's passion is good wine. If the prices of the other goods are constant, Nicanor's demand for a good Rioja is c = 0.04m – 2p where m is his income, p is the price of Rioja and c is the demand for Rioja bottles. Assume that Nicanor has an income of $10,000 and that the price of a decent bottle of Rioja is $50. If the price of Rioja rises to $60, determine the income effect and the substitution effect on the demand for bottles of Nicanor wine.

Nicanor's passion is good wine. If the prices of the other goods are constant, Nicanor's demand for a good Rioja is c = 0.04m – 2p where m is his income, p is the price of Rioja and c is the demand for Rioja bottles. Assume that Nicanor has an income of $10,000 and that the price of a decent bottle of Rioja is $50. If the price of Rioja rises to $60, determine the income effect and the substitution effect on the demand for bottles of Nicanor wine.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 21SQ

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