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Questions › DSE › DSE 2007 › Q26
2 marksMicroeconomics › Demand theory and elasticity › Income and substitution effects: the Slutsky equationHardabout 4 min

DSE 2007 Question 26: Demand theory and elasticity

A farmer's demand for wheat is q=25+m/(20p)q=25+m/(20p)q=25+m/(20p), where mmm is money income and ppp is the price. Money income is Rs. 1000. Initially the farmer buys wheat at Rs. 10 per kg. Now a BPL card lets him buy up to 35 kg of wheat at Rs. 5 per kg. What is the increase in his demand for wheat attributable to the Slutsky substitution effect?

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A farmer's demand for wheat is q=25+m/(20p), where m is money income and p is the price. Money income is Rs. 1000. Initially the farmer buys wheat at Rs. 10 per kg. Now a BPL card lets him buy up to 35 kg of wheat at Rs. 5 per kg. What is the increase in his demand for wheat attributable to the Slutsky substitution effect? (A) 3.5 kg (B) 4.0 kg (C) 4.5 kg (D) 5.0 kg

Demand theory and elasticity has come up 161 times in 7 exams since 2004.

What this question tests

This question is on Income and substitution effects: the Slutsky equation, part of Demand theory and elasticity in Microeconomics.

Splitting a price change into a substitution effect and an income effect, and why Giffen goods break the law of demand.

TestStop has 29 past-paper questions on this subtopic.

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