A consumer earns SEK 24 per week and can buy two goods in quantities measured in...
A consumer earns SEK 24 per week and can buy two goods in quantities measured in x and y respectively. One week the prices are (Px, Py) = (SEK 4, SEK 2) and our consumer buys a “shopping basket” consisting of (x1, y1) = (5, 2). Next week prices have changed to (P¯ x, P¯ y) = (SEK 3, SEK 3). Then the consumer chooses a “shopping basket” consisting of (x2, y2) = (2, 6). Are consumer preferences consistent
Homework Answers
No, consumers preference is not consistent
As prices increase demand should decline
And as prices go down, demand should go up
Here price for first product goes from SEK 4 to 3 and demand reduce from 5to 2
Price if second good increase from SEK 2 to 3 and demand increase from 2 to 6.
This is contrary to normal price elelasticity.
This is a characteristics of Giffen good and not a normal.product.
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A consumer earns SEK 24 per week and can buy two goods in
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