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Corey receives some utility from consuming a frozen dinner (an inferior good) but would much rather purchase healthier food (a normal good). Suppose the price of a frozen dinner increases and the quantity that Corey purchases increases. Assume that a frozen dinner is not a Giffen good. Which effect causes Corey's quantity demanded of a frozen dinner to increase?

User Phuong
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2 Answers

6 votes

Final answer:

The income effect causes Corey's quantity demanded of a frozen dinner to increase when the price of a frozen dinner increases.

Step-by-step explanation:

The effect that causes Corey's quantity demanded of a frozen dinner to increase when the price of a frozen dinner increases is known as income effect.

The income effect occurs when a price change leads to a change in the purchasing power of consumers.

In this case, as the price of a frozen dinner increases, Corey's real income decreases, making frozen dinners relatively more affordable compared to healthier food, causing him to increase his quantity demanded of frozen dinners.

User Matthew Holmes
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4 votes

Answer:

The effect that causes Corey's quantity demanded of a frozen dinner to increase is known as income effect

Step-by-step explanation:

Income effect refers to the change in consumption pattern or in the amount of the good consumed as a result of changes in the consumer's utility and purchasing power. Income effect can be positive or negative.

Here, Corey derives some utility from consuming a frozen dinner (an inferior good). Therefore, as the price increases, the income effect will induce Corey (the consumer) to purchase more.

User Peter Stephensen
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