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Income and Substitution Effects

Practice Problems

Problem : Which of the following are complementary goods, and which are substitute goods?

Right and left shoes?
Sweaters and sweatshirts?
Hot dogs and ketchup?
Nickels and dimes?
Ice cream and sorbet?
Chips and salsa?

Solution for Problem 1 >>

Problem : If Marianne is grocery shopping for cheese and notices that there is a sale on Swiss cheese, how will that affect her demand for Swiss cheese and Emmenthal cheese?

Solution for Problem 2 >>

Problem : Consider the case where Katie gets a raise. How will that affect her consumption of Spam (an inferior good) and steak (a normal good)? What if her income drops? What will happen to her Spam and steak consumption?

Solution for Problem 3 >>

Problem : One of Ruby's favorite cereals, Special K, is on sale at 20% off. How will that affect her buying decision between Special K and Cheerios? What if both are on sale at 20% off?

Solution for Problem 4 >>