What happens as the elasticity of substitution between two goods increases? The MRS becomes closer to 1. The optimal quantity demanded for both goods increases. The income elasticity of demand of the good increases. The degree of substitutability between the two goods goes down. The utility function becomes quasilinear but not homothetic.
What happens as the elasticity of substitution between two goods increases? The MRS becomes closer to 1. The optimal quantity demanded for both goods increases. The income elasticity of demand of the good increases. The degree of substitutability between the two goods goes down. The utility function becomes quasilinear but not homothetic.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter6: Consumer Choices
Section: Chapter Questions
Problem 15CTQ: Income Effects depend on the income elasticity of demand for each good limit you buy. If one of the...
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Transcribed Image Text:What happens as the elasticity of substitution between two goods increases?
The MRS becomes closer to 1.
O The optimal quantity demanded for both goods increases.
The income elasticity of demand of the good increases.
The degree of substitutability between the two goods goes down.
O The utility function becomes quasilinear but not homothetic.
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