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netineya
1 month ago
13

Suppose Jose splits his spending across scones and coffees. Due to droughts in coffee-producing regions, the price of coffee dou

bles. How will the income and substitution effects affect his spending on scones?
Business
1 answer:
marusya05 [3.7K]1 month ago
7 0

Answer:

He is less likely to spend on scones.

Explanation:

To understand spending habits, one must consider various factors involved in purchasing.

  1. Income: Some individuals have a tight budget, which leads them to reduce expenses affecting their spending capabilities. Jose may find purchasing scones less problematic since they are low-cost items, thus indicating a negative correlation.
  2. Substitution: This could influence Jones’ spending on scones since he typically buys both together; if he stops his coffee purchases, he may also forgo buying scones.
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