comparison is as close as it is going to get (40 vs. 70). Often in the real world, it is not possible to get MU/P

exactly equal for both products, so you get as close as you can.

3. This is the opposite of the example explained in the text. A decrease in price has a substitution effect and

an income effect. The substitution effect says that because the product is cheaper relative to other things

the consumer purchases, the consumer will tend to buy more of the product (and less of the other things).

The income effect says that after the price decline, the consumer could purchase the same goods as before,

and still have money left over to purchase more. For both reasons, a decrease in price causes an increase

in quantity demanded.

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4. This is a negative income effect. Because your parents’ check failed to arrive, your monthly income is less
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