Effect of a change in the price of shoes is always zero

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Imelda consumes shoes and a composite of all other goods, whose is price is 1. For Imelda, the income effect of a change in the price of shoes is always zero. Imeldas preferences satisfy all of the usual assumptions (i.e. completeness, nonsatiation, transitivity, and convexity). Initially, Imelda consumes 4 units of shoes and 3 units of other goods. I describe this bundle with the coordinates (4,3). Let PS denote the absolute value of Imelda’s price elasticity of demand for shoes. We definitely know that: a) PS<1. b) PS=1. c) PS>1. d)We do not definitely know any of the above.

Reference no: EM13148445

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