Question

Please answer ALL parts of this one question. No need to show work as long as the answer is CORRECT. Thank you.

Given: Suppose the initial price of good 1 is $2 and the initial price of good 2 is $4 and initial income is $100. A consumer maximizes utility selecting an initial consumption bundle (pt R) and a new consumption bundle (pt S) given a change in an exogenous variable. 80 Baseline Budget: B New Budget:B 70- 60 50 (zi = 75, = 37.5) 30 20 253.03 B2 (zi = 25,z-12.5) 10 th = 17.7 0 0 20 4060 80 100 120 140 160 180 200 Units of Good 1 Figure Description: Units of good 1 is measured on the horizontal axis and units of good 2 are measured on the vertical axis. An initial baseline budget line is provided and is labeled B1. It has a horizontal intercept defined by the ordered pair (50, O) and a vertical intercept defined by the ordered pair (0, 25). The first indifference curve, closest to the origin, is labeled u1-17.7 and it intersects B1 at only one point: point R with ordered pair (25, 12.5). Shifted to the right of the first budget line a second new budget line is provided and is labeled B2. This new budget line has a horizontal intercept defined by the ordered pair (150, 0) and a vertical intercept defined by the ordered pair (0, 75). A second indifference curve, further from the origin and shifted to the right of u1 17.7, is provided and is labeled u2-53.03. This second indifference curve intersects B2 at only one point: point S with ordered pair (75, 37.5) Question: Using the provided information, what exogenous variable changed? O The price of good 1 increased to $4 O The price of good 2 decreased to $2 O Income increased from $100 to $300. Income decreased from Income decreased from $300 to $1 Question: How did the exogenous change affect good 1? It caused demand for good 1 to decrease. It caused quantity demanded for good 1 to decrease It caused demand for good 1 to increase It caused quantity demanded for good 1 to increase. O It caused no change in demand for good 1. It caused no change in quantity demanded for good 1 It caused no change in quantity demanded for good 1 Question: How did the exogenous change affect good 2? It caused demand for good 2 to decrease. It caused quantity demanded for good 2 to decrease. It caused demand for good 2 to increase It caused quantity demanded for good 2 to increase O It caused no change in demand for good 2. It caused no change in quantity demanded for good 2. O Cannot be determined. Question: Comparing the baseline to the new, what type of good is good 1? Good 1 is an ordinary good. Good 1 is a Giffen good. Good 1 is a normal good. Good 1 is an inferior good. Question: Comparing the baseline to the new, what type of good is good 2? O Good 2 is an ordinary good O Good 2 is a Giffen good. Good 2 is a normal good. Good 2 is an inferior good. Question: Comparing the baseline to the new, what happened to consumer well-being? O The consumer was made better-off as a result of the new event. O Utility increased by 35.33 utils O The consumer was made worse-off as a result of the new event. O Utility decreased by 35.33 utils. O Cannot be determined.

Answer 1

Answer :1 : Option three is right answer which is Income increased from $100 to $300

Answer : 2 : Option four is the right answer which is It caused quantity demanded for good 1 increased

Answer : 3 : It caused demand for good 2 to Increase

Answer 4 : Good 1 is a normal Good

Answer 5 : Good 2 is a normal Good

Answer 6 : Utility increased by 35.33 utils.