Suppose the Price of Potatoes Falls and We Observe a Decrease

question 21

Multiple Choice

Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes.Which of the following can we infer?

• A)The substitution effect outweighs the income effect.
• B)The income effect just offsets the substitution effect.
• C)The income effect is negative and outweighs the substitution effect.
• D)The income effect is positive and exceeds the substitution effect.
• E)The income effect is negative and reinforces the substitution effect.

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