What can we say about the substitution and income effects, Econometrics

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What can we say about the substitution and income effects

Income and substitution effects (12 points) GLS Ch5 P11 (Edition 1, P19). Brady, who has ordinary-shaped indifference curves, buys 16 ounces of salt each year. Even when the price of salt doubles, Brady continues to purchase exactly 16 ounces.

(a) True or False (and explain): Salt is neither inferior or normal to Brady. (Hint: Draw a graph showing the income, substitution, and total effects.)

(b) What is Brady's price elasticity of demand for salt?

(d) What can we say about the substitution and income effects of a change in the price of salt?

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