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Suppose that Jim uses his budget to purchase 100 units of Good X and 100 units of Good Y. When the price of Good X rises, he purchases 70 units of Good X and 95 units of Good Y. An economist calculates his compensated budget and finds that in that scenario, Jim would buy 80 units of Good X and 105 units of Good Y.

Required:
Calculate the income effect

Respuesta :

Answer:

the income effect is -10

Explanation:

The computation of the income effect is given below:

The income effect is

= final demand - compensated demand

= 70 - 80

= -10

hence, the income effect is -10

We applied the above formula to determined the income effect

hence, the same is to be considered

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