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Unformatted text preview: revealed to be preferred to the new one. Therefore the consumer must be worse o/. The income e/ect on c 1 is negative, and the substitution e/ect is positive. 2 (d) If the consumer is better o/ as shown above, then both the income and substitution e/ects are positive. If the consumer is worse o/ as shown above, then the income e/ect is negative and the substitution e/ect is positive. 3 3. If the 5 yearly payments start right now, then the present value of the 5 payments is 5000 + 5000 1 + 0 : 05 + 5000 (1 + 0 : 05) 2 + 5000 (1 + 0 : 05) 3 + 5000 (1 + 0 : 05) 4 = 22730 : So the consumer prefers paying in 5 yearly payments if X > 22730 . 4...
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 Spring '06
 MASSON
 Economics, income e¤ect, substitution e¤ect, Tian Liang Solutions

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