Question

Quantity of Milk per Week Quantity of Milk per Week Br \B2 B3 Quantity of Bread per Week Quantity of Bread per Week 1. Indicate whether the statements regarding Figure (i) and Figure (ii) are true or false, and why. a. The move from A to B indicates that bread and milk are normal goods. b. The move from X to Z shows that bread is not an inferior good. C. The law of demand holds for the consumer's demand for bread. 2. Rinzin spends all of her income on two goods potatoes (T) and meat (M). She MU: PT currently consumes a bundle that exhausts her income, and where > She should a. Not change her consumption of potatoes and meat b. Buy less potatoes and more meat c. Buy more potatoes and more meat d. Buy more potatoes and less meat e. Buy less potatoes and less rice

Answer 1

Ans.1

A) True. . As the income of consumer is increasing, he is buying more of bread and milk per week. So, bread and milk are normal goods.

B) True. As we move from X to Z , price of bread is falling. This means his purchasing power increases and it leads to an increase in his demand for week. So, bread is a normal good.

C) True. As the price of bread increases in fig(ii) he buys more units of bread. So, law of demand holds.

Ans.2- (D)

MUt/Pt> MUm/Pm

Which means marginal utility per dollar of money spend on potato is greater than that of meat. So, he should buy more potato and less meat.

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