Page 1 of 1

At the local supermarket, Angela observes that the price of apples is $2 while the price of bananas is $1. Angela buys 5

Posted: Sun May 08, 2022 9:31 am
by answerhappygod
At the local supermarket, Angela observes that the price of
apples is $2 while the price of bananas is $1. Angela buys 5 apples
and 5 bananas. On the way home she runs into her neighbour, Kevin,
a known banana fanatic. He offers her 1 apple in exchange for 1
banana. Although Angela is personally indifferent to the
proposition--she would be just as happy if she made the trade as if
she didn't--she quickly agrees to the exchange so that Kevin will
stop pestering her.
The next week, Angela notices that the price of apples at the
supermarket has decreased to $1. Bananas are still $1 each. She
buys 12 apples and 3 bananas, then walks home by a different route
to avoid the bothersome Kevin.
The week after that, Angela notices that the prices of both
apples and bananas have risen to $1.50. She buys 6 apples and 4
bananas.
When the price of apples fell from $2 to $1, while the price of
bananas held steady at $1, what was the income effect on Angela's
consumption of apples?