Question

Part 1 (1 point) Juliana's optimal consumption of movie tickets is given by the function x* = 5m, where m is her income and Pi is the price of a movie ticket. According to Juliana's preferences, movie tickets are a(n) good. Part 2 (1 point) Assuming her income (m =300.00) increases by $100.00 and the price of a movie ticket is Pi = 2, by how many units does her consumption of movie tickets change?

Answer 1

Answer

Part 1

A good is a normal good if increase in come results in increase in demand and a good is an inferior good if increase in income results in decrease in demand.

Demand of a ticket is given by : x₁ = 3m/(5p₁)

We can see from above demand function that income(m) is directly related to Demand(x₁) . This means that for movie tickets, Increase in income will result in increase in demand.

Hence, Movie tickets are a Normal good

Part 2

Initially m = 300 and p₁ = 2. Thus, x₁ = 3m/(5p₁) = 3*300/(5*2) = 90.

Now, m = 300 + 100 = 400, p₁ = 2. Thus, x₁ = 3m/(5p₁) = 3*400/(5*2) = 120.

Hence, Change in consumption of movie tickets = 120 - 90 = 30.

Hence, Her consumption of movie tickets have changed by 30 units.