Table 10-5 -Refer to Table 10-5, Which Lists the Values of Harry

question 245

Multiple Choice

Table 10-5

-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 a sub sandwich is $4 and the price of a taco 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 a taco 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

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