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Question
Table 10-5| Italian Sub | Italian Sub | Taco | Taco | Taco | |
| Quantity | MU | MU/$4 | MU | MU/$2 | MU/$1 |
| 1 | 40 | 10 | 30 | 15 | 30 |
| 2 | 32 | 8 | 24 | 12 | 24 |
| 3 | 20 | 5 | 16 | 8 | 16 |
| 4 | 12 | 3 | 12 | 6 | 12 |
| 5 | 6 | 1.5 | 8 | 4 | 8 |
| 6 | 2 | 0.5 | 4 | 2 | 4 |
Refer to Table 10-5, which lists the values of Harry Taber's marginal utility and marginal utility per dollar for Italian submarine (sub) sandwiches and tacos. Assume that the price of the sub sandwiches is $4 and the price of tacos is $2. When Harry's income is $14 he buys two Italian sub sandwiches and three tacos. The last column lists the values of the marginal utility per dollar for tacos when the price of tacos decreases to $1. Complete this statement: As a result of the change in price
A) Harry's purchasing power has increased. He will reduce his consumption of tacos so he can buy one more sub. This is an example of the substitution effect of a price change.
B) Harry's purchasing power has increased. If tacos are a normal good for Harry he will buy fewer tacos. This is an example of the income effect of a price change.
C) Harry's purchasing power has increased. If tacos are a normal good for Harry he will buy more tacos. This is an example of the income effect of a price change.
D) Harry's purchasing power has increased. Harry buys fewer tacos. This is an example of the substitution effect of a price change
Answer
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