Question

A. 20 CDs and 30 Books B. 60 CDs and 10 Books C. 15 CDs and 40 Books D. 30 CDs and 15 Books ) What effect does a compensated price change have on a consumer's well B. The consumer's well-being decreases. C. The consumer's well-being is unaffected. A. The consumer's well-being increases. knowing the D. The effect on the consumer's well-being cannot be determined without kn direction of the price change. 8) Which of the following is correct? De A. The eflect of a compensated price change equals the effect of an change plus the effect of providing compensation. change plus the effect of removing compensation. change plus the effect of providing compensation. change plus the income effect of the price change. B The efiet ofa compensated price change equals the effect of an B. The effect of a C. The effect of an uncompensated price change equals the effect of an s the substitution effect of the price D. The effect of a compensated price change equal 9) Which of the following statements about the income effect of a price change is NOT true? 1, D A. It affects consumption by removing compensation. B. It always involves a parallel shift in the budget line. C. It isolates the influence of a change in relative prices. D. It reflects the fact that a price change affects a consumer's purchasing power. 10) For a normal good, the income and substitution effects work in the-direction. Therefore, a change in price produces a.....change in uncompensated demand than in compensated demand. A. Opposite; smaller B. Opposite; larger C. Same; smaller D. Same; larger I1) A Hicksian, or compensated, demand curve reflects A. Only the substitution effect of a price change. B. Oaly the income effect of a price change C. Both the income and substitution effects of a price change. D. Neither the income nor the substitution effects of a price change. 12) If a good is inferior, then uncompensated demand curve: whenever the compensated demand curve intersects the A. The B. The demand curve is steeper than the compensated demand curve. curve is steeper than the uncompensated demand curve

Answer 1

7. The effect of compensated price change on consumer well being is that the effect of consumers well being cannot be determined without knowing direction of price change. It is because the compensating variation of price change equals the resulting change in consumer surplus.

8. D is correct. The effect of compensated price change equals the substitution effect of the price change plus the income effect of the price change.

9. C is not true i.e. it isolates the influence of a change in relative prices.

10. For normal products, the income impact is Positive. In this way, when cost of a typical decent falls and results in increment in the obtaining power, wage impact will act an indistinguishable way from the substitution impact, that is, both will work towards expanding the amount requested of the great whose cost has fallen. The correct option is C.