Homework Answers
| Shock : p2 decreases | Substitution effect | Income effect | Total effect |
| Good 1 is normal | - | + | ? |
| Good 1 is inferior | - | - | - |
| Good 2 is normal | + | + | + |
| Good 2 is inferior | ? | - | ? |
As the price reduces, the demand increases for normal goods, but remains the same for inferior goods due to substitution effect. Due to income effect, the demand increases for normal goods and reduces for inferior goods.
As the price of competing products reduces, the demand reduces for normal goods, and reduces for inferior goods due to substitution effect. Due to income effect, the demand increases for normal goods and reduces for inferior goods.
Both the Good 1 and Good 2 cannot be inferior at once, because it is a comparative measure. One good is inferior compared to the other one.
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Exercise 1: Decomposing the Total effect of a price change We wume that an individual consumes...
Please show work and explain work for both questions for a full rating. Thank you. Question...
Please show work and explain work for both questions for a full
rating. Thank you.
Question 1 When the price of a good increases, George reduces his quantity demanded by 6 units due to substitution effect and increases his quantity demanded by 2 units due to income effect. For George, therefore, this must be: A. A normal good B. An inferior good C. A Giffen good D. Either a normal good or an inferior good E. None of the above...
QUESTION 7 TE, SE, IE. When the price of good 1 decreases, the following is true...
QUESTION 7 TE, SE, IE. When the price of good 1 decreases, the following is true (select all that applies; O a If good 1 is a normal good, then the substitution effect leads to increase in consumption of t. 1 poi b. If good 1 is an inferior good, then the substitution effect leads to decrease in consumption of it. O C If good 1 is a normal good, then the income effect leads to decrease in consumption of...
(unsure of selected answer) Assume that a consumer has well-behaved preferences. Following a price increase for...
(unsure of selected answer)
Assume that a consumer has well-behaved preferences. Following a price increase for good 1, we observe that a consumer increases the quantity demanded for good 1. From this, we know that O The pure substitution effect increases the consumption of good 1 O The pure substitution effect and the income effect must reinforce one another O Good 1 must be an inferior good. O both a and c O None of the above
Answer True/False 1. A change in the price of a good will cause a shift in...
Answer True/False 1. A change in the price of a good will cause a shift in its demand curve. (2 marks) 2. An increase in consumers’ incomes will cause an expansion in the demand of all goods. (2 marks) 3. The price charged for a good is the equilibrium price. (2 marks) 4. An inferior good is one that has been badly produced. (2 marks) 5. Mad cow disease led to an increase in the price of pork. (2 marks)...
Can someone check these answers please and ensure that they are correct. If not, can you...
Can someone check these answers please and ensure that they are
correct. If not, can you please explain how to do/ what was done
wrong. Thank you!
QUESTION 1 In 2007, the economy slipped in a recession that many called the worst since the Great Depression. This caused people to experience a general decrease in their income levels. At the same time, there was an increase in the price of wheat used to make Ramen Noodles (an inferior good). Given...
Question 34 1 pts Economists estimated that the price elasticity of beer is 0.23 and the income elasticity of beer is -...
Question 34 1 pts Economists estimated that the price elasticity of beer is 0.23 and the income elasticity of beer is -0.09. This means that C a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good. an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a necessity. an increase in the price of beer will...
Q02 A consumer is choosing between good 'X' and a composite good Y.' The price of...
Q02 A consumer is choosing between good 'X' and a composite good Y.' The price of 1 unit of good X is $2. The below diagram shows the consequences of a change in the price of good X.' The initial pre-change optimal bindle is the new post-change optimal consumption bundle is Ez. Use the information provided in the diagram to answer the following questions. a. Did the price of 1 unit of good 'X' increase or decrease? b. Use the...
Suppose that goods X and Y are substitutes and the price of good Y falls. We...
Suppose that goods X and Y are substitutes and the price of good Y falls. We would then expect the quantity of good Y demanded to increase and the demand for good X to increase also. an increase in the demand for good X and a decrease in the quantity of good Y demanded. an increase in the demand for both good X and good Y. an increase in the quantity demanded of good Y and a decrease in the...
1) Dave consumes two normal goods, X and Y, and is currently at an optimum....
1) Dave consumes two normal goods, X and Y, and is currently at an optimum. If the price of good X falls, we can predict with certainty that a. the substitution effect will be positive for good X and negative for good Y. b. Dave will consume more of both goods because his real income has risen. c. Dave may consume more or less of good X, but he will...
rick purchses two goods food and clothing 1. Rick purchases two goods, food and clothing. He has a diminishing marg...
rick purchses two goods food and clothing
1. Rick purchases two goods, food and clothing. He has a diminishing marginal rate of substi- tution of food for clothing. Let z denote the amount of food consumed and y the amount of elothing. Suppose the price of food increases from P to P (> P). On a clearly labeled graph, illustrate the income and substitution effects of the price change on the consumption of food. Do so for each of the...
Please show work and explain work for both questions for a full
rating. Thank you.
Question 1 When the price of a good increases, George reduces his quantity demanded by 6 units due to substitution effect and increases his quantity demanded by 2 units due to income effect. For George, therefore, this must be: A. A normal good B. An inferior good C. A Giffen good D. Either a normal good or an inferior good E. None of the above...
QUESTION 7 TE, SE, IE. When the price of good 1 decreases, the following is true (select all that applies; O a If good 1 is a normal good, then the substitution effect leads to increase in consumption of t. 1 poi b. If good 1 is an inferior good, then the substitution effect leads to decrease in consumption of it. O C If good 1 is a normal good, then the income effect leads to decrease in consumption of...
(unsure of selected answer)
Assume that a consumer has well-behaved preferences. Following a price increase for good 1, we observe that a consumer increases the quantity demanded for good 1. From this, we know that O The pure substitution effect increases the consumption of good 1 O The pure substitution effect and the income effect must reinforce one another O Good 1 must be an inferior good. O both a and c O None of the above
Can someone check these answers please and ensure that they are
correct. If not, can you please explain how to do/ what was done
wrong. Thank you!
QUESTION 1 In 2007, the economy slipped in a recession that many called the worst since the Great Depression. This caused people to experience a general decrease in their income levels. At the same time, there was an increase in the price of wheat used to make Ramen Noodles (an inferior good). Given...
Question 34 1 pts Economists estimated that the price elasticity of beer is 0.23 and the income elasticity of beer is -0.09. This means that C a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good. an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a necessity. an increase in the price of beer will...
Q02 A consumer is choosing between good 'X' and a composite good Y.' The price of 1 unit of good X is $2. The below diagram shows the consequences of a change in the price of good X.' The initial pre-change optimal bindle is the new post-change optimal consumption bundle is Ez. Use the information provided in the diagram to answer the following questions. a. Did the price of 1 unit of good 'X' increase or decrease? b. Use the...
rick purchses two goods food and clothing
1. Rick purchases two goods, food and clothing. He has a diminishing marginal rate of substi- tution of food for clothing. Let z denote the amount of food consumed and y the amount of elothing. Suppose the price of food increases from P to P (> P). On a clearly labeled graph, illustrate the income and substitution effects of the price change on the consumption of food. Do so for each of the...
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