Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied. Furthermore,...
Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied. Furthermore, assume that both X and Y are normal goods and that the price of good X increases. Then, which of the following effects is known with certainty?
The income and substitution effects reinforce one another, leading to an overall increase in the consumption of good X.
The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X.
The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good X.
The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.
Homework Answers
Ans -The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X.
The income and substitution effects reinforce one another if both goods are normal. If one good is normal and other is inferior then they will have competing effects.
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Suppose that consumers' preferences are well behaved in that
properties 4-1 to 4-4 are satisfied. Furthermore,...
Question 43 Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are...
Question 43 Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied. Furthermore, assume that both X and Y are inferior goods and the price of good Y increases. Then the substitution effect will lead consumers to consume: more of good X and more of good Y. less of good X and more of good Y. less of good X and less of good Y. more of good X and less of good Y.
(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
Question 1 (1 point) (1 Point) We assume that the representative consumer's preferences exhibit the properties...
Question 1 (1 point) (1 Point) We assume that the representative consumer's preferences exhibit the properties that Oa) they evolve over time and that more is always preferred to less. Ob) more is sometimes preferred to less and that consumption and leisure are both normal goods c) more is preferred to less and that the consumer prefers diversity d) the consumer likes diversity and that more is sometimes preferred to less. Question 2 (1 point) (1 Point) A good is...
4. Devon's preferences over food and a composite good are given by u(x, y) = xy...
4. Devon's preferences over food and a composite good are given by u(x, y) = xy , where x is the quantity of food and y is the quantity of composite good. His income is $120 per week. a) Find Devon's optimal bundle when the price of food is $4 per unit. b) Calculate Devon's income and substitution effects of a decrease in the price of food to $2 per unit.
a consumers income is $100. prices of goods X and Y are $1 per unit. suppose...
a consumers income is $100. prices of goods X and Y are $1 per unit. suppose the consumer facing such prices chooses the bundle that includes 60 units of good Y. next, the price of good X increases to $2 per unit. the consumer's new choice involves a bundle with 40 units of good X. is X a normal good,an inferior good,or is there insufficient information to answer this question? explain using a graph and the concepts of income and...
4. An individual has preferences over two goods (x and y) that are represented by function...
4. An individual has preferences over two goods (x and y) that are represented by function U = min{x,y}. The individual has income $60, the price of x is $4 and the price of good y is $2. (a) What kind of goods are these to the individual? (i.e. what "special case” is this?) (b) What is this individual's budget constraint? (c) What is this individual's optimal bundle of x and y? [HINT: You can't take the derivative of this...
5. Consumers utility, function is U(zi,T2) = xi (T2-1). Consumer's income is 30 and price of good「 is 4. Compute t...
5. Consumers utility, function is U(zi,T2) = xi (T2-1). Consumer's income is 30 and price of good「 is 4. Compute the Income and substitution effects for good 2 as its price decreased from 6 to 2 and the consumer shifted from consumption bundle (3;3) to (3.5;8).
Sophie's preferences over two goods are given by u21, 12) = 40x12 +22. Good 1 costs...
Sophie's preferences over two goods are given by u21, 12) = 40x12 +22. Good 1 costs $2 per unit and good 2 costs $1 per-unit. a) Sketch Sophie's income offer curve in a clearly labelled diagram. (1 point) b) Find the optimal consumption bundle when Sophie is spending m = $250 on the two goods. Illustrate your answer in the above diagrams. (1 point) c) Suppose that the price of good 1 increases to $4 per-unit. Under the assumption that...
1. True or False, and explain briefly. 1) The assumption that more is better implies that...
1. True or False, and explain briefly. 1) The assumption that more is better implies that the indifference curves are upward sloping 2) Convexity of indifference curves implies that consumers are willing to give up more to get an extra the more they have 3) Consider the following three bundles. Bundle Good Goody If Bundles A and B are on the same indifference curve, preferences satisfy all the usual assumptions introduced in the lecture, Bundle Cis preferred to Bundle A...
Suppose an individual’s utility function for two goods X and Y is givenby U(X,Y) = X^(3/4)Y^(1/4)...
Suppose an individual’s utility function for two goods X and Y is givenby U(X,Y) = X^(3/4)Y^(1/4) Denote the price of good X by Px, price of good Y by Py and the income of the consumer by I. a) (2 points) Write down the budget constraint for the individual. b) (4 points) Derive the marginal utilities of X and Y. c) (3 points) Derive the expression for the marginal rate of substitution of X for Y. Write down the tangency...
(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
Question 1 (1 point) (1 Point) We assume that the representative consumer's preferences exhibit the properties that Oa) they evolve over time and that more is always preferred to less. Ob) more is sometimes preferred to less and that consumption and leisure are both normal goods c) more is preferred to less and that the consumer prefers diversity d) the consumer likes diversity and that more is sometimes preferred to less. Question 2 (1 point) (1 Point) A good is...
4. Devon's preferences over food and a composite good are given by u(x, y) = xy , where x is the quantity of food and y is the quantity of composite good. His income is $120 per week. a) Find Devon's optimal bundle when the price of food is $4 per unit. b) Calculate Devon's income and substitution effects of a decrease in the price of food to $2 per unit.
4. An individual has preferences over two goods (x and y) that are represented by function U = min{x,y}. The individual has income $60, the price of x is $4 and the price of good y is $2. (a) What kind of goods are these to the individual? (i.e. what "special case” is this?) (b) What is this individual's budget constraint? (c) What is this individual's optimal bundle of x and y? [HINT: You can't take the derivative of this...
5. Consumers utility, function is U(zi,T2) = xi (T2-1). Consumer's income is 30 and price of good「 is 4. Compute the Income and substitution effects for good 2 as its price decreased from 6 to 2 and the consumer shifted from consumption bundle (3;3) to (3.5;8).
Sophie's preferences over two goods are given by u21, 12) = 40x12 +22. Good 1 costs $2 per unit and good 2 costs $1 per-unit. a) Sketch Sophie's income offer curve in a clearly labelled diagram. (1 point) b) Find the optimal consumption bundle when Sophie is spending m = $250 on the two goods. Illustrate your answer in the above diagrams. (1 point) c) Suppose that the price of good 1 increases to $4 per-unit. Under the assumption that...
1. True or False, and explain briefly. 1) The assumption that more is better implies that the indifference curves are upward sloping 2) Convexity of indifference curves implies that consumers are willing to give up more to get an extra the more they have 3) Consider the following three bundles. Bundle Good Goody If Bundles A and B are on the same indifference curve, preferences satisfy all the usual assumptions introduced in the lecture, Bundle Cis preferred to Bundle A...
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