Question

Esteban receives some utility from consuming a bottle of store-brand soda (an inferior good) but would much rather purchase a name-brand soda (a normal good). Suppose the price of a bottle of store-brand soda increases and the quantity that Esteban purchases increases. Assume that a bottle of store-brand soda is not a Giffen good. Which effect causes Esteban's quantity demanded of a bottle of store-brand soda to decrease? income effect framing effect substitution effect marginal effect Which effect causes Esteban's quantity demanded of a bottle of store-brand soda to increase? framing effect substitution effect income effect marginal effect

Answer 1

Answer: SUBSTITUTION EFFECT causes Esteban's quantity demanded of a bottle of store-brand soda to decrease while INCOME EFFECT causes Esteban's quantity demanded of a bottle of store-brand soda to increase.

Explanation: The substitution effect is the change in the quantity demanded of a good that results from​ a change in price making the good more or less expensive relative to other goods holding constant the effect of the price change on consumer purchasing power.

The income effect causes quantity demanded to​ increase when the price of a normal good​ decreases, and causes quantity demanded to​ decrease when the price of an inferior good decreases.

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Answer 2

Answer:

Esteban quantity demanded of a bottled store brand soda to decrease is a substitution effect, because when the price for bottled soda increased, the consumer substituted esteban for bottle soda.

Secondly, the esteban quantity demand of a bottled store brand soda to increase is an income effect, this is because the stored branded soda is inferior goods.