Fred's Behavior in Buying Less Pork and Lamb Chops

What influences Fred's decision to buy fewer pork and lamb chops?

When the price of pork chops rises with no change in his income or in the price of lamb chops, what affects Fred's purchasing behavior?

Answer:

Fred's behavior in buying fewer pork and lamb chops when the price of pork chops rises can be explained through the substitution effect and income effect.

The substitution effect incentivizes consumers to switch to cheaper alternatives when the price of a good increases. Meanwhile, the income effect describes the decrease in buying power because of the price increase, causing consumers to buy less overall.

The behavior of Fred is explained by two economic principles: the substitution effect and the income effect. The substitution effect states that when the price of a good (in this case, pork chops) goes up, individuals will likely substitute it with a cheaper alternative (lamb chops). However, Fred buys fewer lamb chops, which can be attributed to the income effect.

The income effect states that when the price of a good an individual normally buys goes up and the individuals' income remains the same, he effectively experiences a decrease in buying power. Fred's response here is to buy less of both pork and lamb chops.