Question

Suppose the price of tomatoes falls, ceteris paribus. Describe the impact the substitution effect and the real income effect would have on the quantity demanded of tomatoes.

Answer 1

Answer:

Ceteris paribus assumption: Demand curves relate the prices and quantities demanded assuming no other factors change

Explanation:

Ceteris paribus is a  Latin phrase meaning “other things being equal”. If all else is not held equal, then the laws of supply and demand will not necessarily hold.

Demand is the amount of some product a consumer is willing and able to purchase at each price.

IMPACT THE SUBSTITUTION EFFECT AND THE REAL INCOME

A substitute is a good or service that can be used in place of another good or service. A lower price for a substitute decreases demand for the other product and increases the quantity demanded for tomatoes

A change in the price of a good or service causes a movement along a specific demand curve, and it typically leads to some change in the quantity demanded, but it does not shift the demand curve.