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9.2 (0) Mario has a small garden where he raises eggplant and tomatoes.
He consumes some of these vegetables, and he sells some in the market.
Eggplants and tomatoes are perfect complements for Mario, since the only
recipes he knows use them together in a 1:1 ratio. One week his garden
yielded 30 pounds of eggplant and 10 pounds of tomatoes. At that time
the price of each vegetable was $5 per pound.
(e) Assuming that the price of tomatoes rose to $15 from $5 before Mario
made any transactions, the change in the demand for tomatoes due to
the substitution e fect was (0). The change in the demand for
tomatoes due to the ordinary income e fect was (−10). The change
in the demand for tomatoes due to the endowment income e fect was
(+5). The total change in the demand for tomatoes was (−5 )
plz explain the decomposition into endowment income effect and income effect. I just can't seem to get the hang of it. Thanks.
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