A man earns $3,000 per month and allocates $300/month for bus travel to visit his children three times per month. The bus company lowers the cost such that he can now take four trips a month for $320, which he decides to do. His decision to visit his children more often is most likely due to which economic effect?
- Income effect alone
- Substitution effect alone
- Income and substitution effects combined
The income effect is purchasing more of a good when its price falls, it leads to more purchasing power (real income) of that good.
substitution effect Purchasing more of a good when its price falls.
so the solution to this is option 1?
or m I skipping any key word.
Thanks in advance!!