3. Income and substitution effects Valerie has a so-called fruit budget, which she uses to buy only peaches and avocados

[answerhappygod]

3 Income And Substitution Effects Valerie Has A So Called Fruit Budget Which She Uses To Buy Only Peaches And Avocados 1 (14.64 KiB) Viewed 13 times

3. Income and substitution effects Valerie has a so-called fruit budget, which she uses to buy only peaches and avocados. Assume the price of peaches increases. Which of the following is an example of the income effect? The increase in the price of peaches makes peaches relatively more expensive than avocados, so Valerie will buy fewer peaches and more avocados. Because the price of peaches increases, Valerie will choose to buy only avocados and no peaches. The increase in the price of peaches decreases Valerie's real income, which forces Valerie to buy fewer fruits in general.