Question

Taco and DVD. Suppose the price of Taco decreases. David's consumption of DVD will:

Select one:
a.remain unchanged, since the income elasticity of pizza is greater than 0.
b.increase due to the income effect.
c.increase due to a negative income elasticity.
d.increase due to the substitution effect.

Answer 1

The consumption of DVDs will increase due to the substitution effect.

Step-by-step explanation:

The answer to the question is d. increase due to the substitution effect.

When the price of tacos decreases, it becomes relatively cheaper compared to DVDs. This leads to a substitution effect where David will switch from consuming DVDs to consuming more tacos since the price of tacos is now more attractive. Therefore, the consumption of DVDs will increase due to the substitution effect.