Two Consumers, Eric and Eli, Have the Same Preferences for Good

question 142

Essay

Two consumers, Eric and Eli, have the same preferences for good X, a normal good. The only difference is that for Eli there would be no income effect if the price of good X changed. For Eric, there are both income and substitution effects for a price change. What does this tell you about Eric's and Eli's demand for good X? Explain.

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Definitions:

Inelastic Demand

A situation in economics where the change in the price of a good or service has little to no effect on the quantity demanded by consumers.

Total Revenue

The total amount of money a firm receives by selling goods or services.

Substitutes

Goods or services that can be used in place of each other, offering similar benefits to consumers.

Elastic Demand

A situation where the demand for a product significantly changes in response to changes in its price.