If a consumer consumes two goods, A and B, and the price of A falls, then the substitution effect would cause the consumer to: O a. buy less A and less B. O b. buy less A and more B. Qc buy more A and more B. O d. buy more A and less B.
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- You consume only soda and pizza. One day, the priceof soda goes up, the price of pizza goes down, andyou are just as happy as you were before the pricechanges.a. Illustrate this situation on a graph.b. How does your consumption of the two goodschange? How does your response depend onincome and substitution effects?c. Can you afford the bundle of soda and pizza youconsumed before the price changes?Good X A B IC2 ICG Good Y The rotation of the budget line from red to blue depicts an increase in monetary income. The rotation of the budget line from red to blue depicts a decrease in monetary income. O The rotation of the budget line from red to blue depicts an increase in the price of X. O The rotation of the budget line from red to blue depicts an increase in the price of Y. O The rotation of the budget line from red to blue depicts an decrease in the price of X. O The rotation of the budget line from red to blue depicts an decrease in the price of Y. After the budget line rotates from red to blue, the amount of X consumed will increase. After the budget line rotates from red to blue, the amount of Y consumed will increase. O After the budget line rotates from red to blue, the amount of Y consumed will decrease. O After the budget line rotates from red to blue, the amount of X consumed will decrease. O After the budget line rotates from red to blue, the person will move from A to…If a consumer consumes two goods, A and B, and the price of A falls, then the income effect would cause the consumer to: O a buy more A and less B. O b. buy less A and more B Oc. buy less A and less B. O d. buy more A and more B
- Julian buys plants and flowers every month. Bothare normal goods. When the price of flowers fell,Julian purchased fewer plants. Which effect wasstronger for Julian, the income effect or the substitution effect?When the price of a normal good falls,a. both the income and substitution effects combineto cause the quantity demanded to increase.b. the substitution effect will cause people tobuy more because the good is relatively lessexpensive.c. the income effect will cause people to buymore because of the increased purchasingpower associated with the lower price.d. All of the above answers are correct.If Edna buys more pasta when the price of pastaincreases, we can infer that for Ednaa. pasta is a normal good for which the incomeeffect exceeds the substitution effect.b. pasta is a normal good for which the substitutioneffect exceeds the income effect.c. pasta is an inferior good for which the incomeeffect exceeds the substitution effect.d. pasta is an inferior good for which thesubstitution effect exceeds the income effect.
- Answer the following short questions:a. Suppose that a consumer’s preferences between goods x andy are represented by the utility function u(x, y) = x^2 + 16xy + 64y^2. If these two goods have the same price, describe the optimal consumptionchoice of this consumer.b. Suppose that when the price of a good change, the incomeand substitution effects change the consumer’s demand for that goodin opposite directions.i. Is this good a normal or an inferior good? Explain.ii. Is this good a Giffen or an ordinary good? Explain.c. Is the following statement true or false? The differencebetween a monopolist’s marginal cost and its profit-maximizing price issmaller when the demand is more elastic.Paul consumes only books and DVDS. At his current consumption bundle, his marginal utility from DVDS is 10 and from books is 2. Each DVD costs $12, and each book costs $1. Is he maximizing his utility? Explain. Let MU, be the marginal utility of books, MU, be the marginal utility from DVDS, Pg be the price of books, P, be the price of DVDS, and MRS be the marginal rate of substitution. Paul is MUB MUD A. maximizing his utility because PB PD MUB MUD B. not maximizing his utility because PB MUB C. maximizing his utility because MRS MUD MUB O D. not maximizing his utility because MRS> MUD MUB MUD E. maximizing his utility because Рв PDFor normal goodsA) the substitution effect of a price decrease will decrease the quantity of the good demanded while theincome effect of a price decrease will increase the quantity of the good demanded.B) the substitution and income effects of a price decrease will both increase the quantity of the gooddemanded.C) the substitution and income effects of a price decrease will both decrease the quantity of the gooddemanded.D) the substitution effect of a price decrease will increase the quantity of the good demanded while theincome effect of a price decrease will decrease the quantity of the good demanded.
- At first, Jeff's optimal bundle is A. After a decrease in the price of X, Jeff, whose preferences are well-behaved, chooses a new optimal bundle, B. Select the correct alternative: Y O Goods X and Y are perfect complements. Goods X and Y are perfect substitutes. OOOO O Goods X and Y are complements Goods X and Y are substitutes. IC2 BL1 B IC1 BL2 X QUESTION 5 Gennaro's preferences can be represented by the utility function U-2XY 2. His budget is $54, price of good X is $3, price of good Y is $5. What is Sila davist om LUBLA Click Save and Submit to save and submit. Click Save All Answers to save all answers. Save All AnsYou are choosing between two goods, X and Y, and your marginal utility from each is shown in the following table. Units of X MUX Units of Y MU 1 20 16 14 16 3. 12 3. 12 4 8. 4. 10 6. 4. 8. 6. 6. Instructions: Enter your answers as a whole number. a. If your income is $18.00 and the prices of X and Y are $4.00 and $2.00, respectively, what quantities of each will you purchase to maximize utility? units of X and units of Y b. What total utility will you realize? utilsSoppose Felix has 9dollars to spend on good x and y.The price ofgood Y is one.If consuming 6units of good y is utilitymaximizing,what must be the price of good x and the amount of goodx that he consumes for a utility function ofa.U=x^(1/3)y^(2/3)b.U=x+2yc.U=x+ln y
