7. Jamal consumes only two goods: lollipops and chewing gum. He treats these two goods as perfect substitutes, with one lollipop being a perfect substitute for a pack of chewing gum. Initially, the price of a lollipop is $0.10, while packs of chewing gum are $0.25 each. Jamal has $20 per week to spend on these two goods. Suppose the price of chewing gum decreases to $0.15. What is the substitution and income effect associated with the change in the price of chewing gum

The description including its given issue is discussed in the following subsections on the explanation.

Explanation:

The opportunity cost asserts that whenever the quantity of a commodity falls, it's as though the earnings of that same purchaser including its good started going up. The substitution hypothesis notes because as the rate of a decent increase, buyers will replace the cheapest good with products that seem to be comparatively more costly.

Throughout the cases of common goods, the substitution effect becomes negative, meaning that even if the alternative price decreases, the market for the same commodity increases.

Income influence also becomes negative throughout the case of typical goods, i.e., unless the cost of healthy food declines, it implies the buying power Rises because.

If Package of Chewing Gum's price drops, the income as well as substitution result would be the following factors:

Currently, the need for chewing would be increasing due to increased customer productive capacity.

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