Question

Chapter 4 Horme. IMMHE Reader ×1 MMHE Reader ×1 MMHE Reader ×1 MMHE Reader × x, MweReader ×1 ework Help Seve A consumer must spend all of her income on two goods (X and y. In each of the following scenarios, indicate whether the equilibrium consumption of goods X and Ywill increase or decrease Assume good X is a normall good and good Yis an inferior good a Income doubles Nothing will happen to the consumption of either good. O Consumption of good X will decrease and consumption of good Y will increase. O Consumption of good X will increase and consumption of good Y will decrease. Consumption of good X will increase and consumption of good Y wili increase b. Income quadruples and all prices double Consumption of good X will increase and consumption of good Y will decrease Consumption of good X will decrease and consumption of good Y will decrease. Nothing wil happen to the consumption of either good Consumption of good X will decrease and consumption of good Y will increase C. Income and all prices quadruple < Pres 6 of 25 İİİ Score answer > Home

Answer 1

a. Option C. As income doubles, the consumption of good X will increase because good X is a normal good and consumption of good Y will decrease because good Y is an inferior good where increase in income leads to decline in consumption of good Y.

b. Option A. Since increase in income is more than increase in prices, thus consumption of good X will increase and consumption of good Y which is an inferior good will decline with increase in price and fall in income as it has downward sloping demand curve.