Answer: See explanation
Explanation:
Income effect is when the demand for a particular good or service changes because the real income of the person has changed.
Substitution effect arises when there is a reduction in the sales for a good or service due to a price rise and therefore the consumers have switched to a cheaper alternative. For example, if the price of beef rises, the consumers may shift and purchase more of chicken.
Based on the above scenario, the following will then be:
• The price of lobster doubles, making Henri feel less wealthy. As a result, Henri buys fewer lobsters.
Income effect
Henry's real income has changed, he has more money and hence reduces the purchase for lobsters because he sees it as inferior good.
• The price of chicken falls by $0.75 a pound. Since chicken is now relatively less expensive than ground beef, Mary buys more chicken and less beef.
Substitution effect
Mary has moved to a cheaper alternative in this situation.
• The average price of a DVD falls by 15 percent. Tom buys more DVDs because his monthly movie budget can now stretch further.
Income effect
• Model Planes Incorporated reduces production of its wooden plane product line.
No effect
No effect here as it's neither income effect not substitution effect.
• Jessica sees that the price of orange juice is higher this week. She decides to buy less orange juice and more apple juice because orange juice is relatively more expensive.
Substitution effect
