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    Question

    Consider KRK’s demand function for cigarettes for  as

    Q= .02m- 2p where m is his income and p is the price. KRK’s income is Rs.7500 and the price of a cigarette is Rs.30. Suppose government decides to increase the price of cigarettes to Rs.40, the change in total demand, income effect and substitution effect for KRK is                                                               
    A Change in Total Demand =-20, Income Effect =-15 and Substitution Effect = -5 Correct Answer Incorrect Answer
    B Change in Total Demand = -25, Income Effect =-18 and Substitution Effect = -7 Correct Answer Incorrect Answer
    C Change in Total Demand = -30, Income Effect =-15 and Substitution Effect = -15 Correct Answer Incorrect Answer
    D Change in Total Demand = - 20, Income Effect = -18 and Substitution Effect = -2 Correct Answer Incorrect Answer

    Solution

     

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