Quelpr
6 marksTheory of Consumer Demand

CAPE Economics Unit 1 · 2012 · Paper 2 · Question 1(b)(ii)

The shift from equilibrium A to equilibrium B is the total effect.

With the aid of a diagram, explain the income and substitution effects using either the Hicksian approach or the Slutskian approach.

The mark scheme is shown once you've answered.

Practise this question

Other parts of this question

  1. 1(a)(i)a)Define the terms 'indifference curve' and 'budget line'.[2 marks]
  2. 1(a)(i)b)Draw a diagram showing an indifference curve and a budget line, and use it to explain consumer equilibrium.[8 marks]
  3. 1(a)(ii)Using the diagram from (a)(i)b), explain how a decrease in the price of Good X shifts the consumer to equilibrium B.[5 marks]
  4. 1(b)(i)a)Explain what is meant by the 'substitution effect'.[2 marks]
  5. 1(b)(i)b)Explain what is meant by the 'income effect'.[2 marks]

More practice: the rest of this paper · more Theory of Consumer Demand questions · all CAPE Economics Unit 1 past papers