When the price of good 1 decreases, the following is true (select all that applies): a) If good 1 is a normal good, then the substitution effect leads to increase in consumption of it. b) If good 1 is an inferior good, then the substitution effect leads to decrease in consumption of it. c) If good 1 is a normal good, then the income effect leads to decrease in consumption of it. d) If good 1 is an inferior good, then the income effect leads to decrease in consumption of it. e) As long as good 1 is an inferior good, the total effect always leads to a decrease in consumption of it. f) If total effect leads to decrease in consumption of good 1, then income effect must also lead to decrease consumption of it. none of the above

When the price of good 1 decreases, the following is true (select all that applies): a) If good 1 is a normal good, then the substitution effect leads to increase in consumption of it. b) If good 1 is an inferior good, then the substitution effect leads to decrease in consumption of it. c) If good 1 is a normal good, then the income effect leads to decrease in consumption of it. d) If good 1 is an inferior good, then the income effect leads to decrease in consumption of it. e) As long as good 1 is an inferior good, the total effect always leads to a decrease in consumption of it. f) If total effect leads to decrease in consumption of good 1, then income effect must also lead to decrease consumption of it. none of the above

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 5CQQ

See similar textbooks

Similar questions

What is the rule relating the ratio of marginal utility to prices of two goods at the optimal choice? Explain why, if this rule does not hold, the choice cannot be utility-maximizing
For 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.
3. Assume that the price of goods x increases. If x is a normal good, the substitution effect alone leads to a decrease in consumption of x.
12)Suppose a consumer has $100 to spend on two goods, shoes and shirts. If the price of a pair of shoes is $20 per pair and the price of a shirt is $15 each, which of the following combinations is unaffordable to the consumer? A) 0 pairs of shoes and 0 shirts B) 2 pairs of shoes and 4 shirts C) 5 pairs of shoes and 0 shirts D) 0 pairs of shoes and 7 shirts E) 2 pairs of shoes and 3 shirts
Suppose consumer consume two goods. Can both goods be inferior? Can one of the goods be inferior? Explain your reasoning clearly. 19
7) Suppose that upon solving for optimal bundles of hamburgers and french fries, we determine that when the price of hamburgers is $5 and the price of fries is $2, that we consume 2 hamburgers and 5 orders of fries. Suppose further that, upon changing the price of fries to $4, we only consume 3 orders of fries. Draw out a demand curve for fries, labeling two points. This is not a trick question, this one is supposed to be easy.
6. My utility over goods 1 and 2 is given by: u(x1,x2)=min{x1/a,x2/b} Where x1is the quantity of good 1 I consume and x2 is the quantity of good 2 I consume. Assuming I purchase only goods 1 and 2... If a = 2, b = 5, the price of good 1 is $2/unit, the price of good 2 if $7/unit and my income is $5, how much good 2 will I consume to maximize my utility? (Note: The answer may not be a whole number, so round your answer to the nearest hundredth) (Note: The numbers may change between questions, so read carefully)
1. What information do we gain by isolating the income and substitution effects from each other when examining the effect of a change in price on consumption? How does this further help us understand the characteristics of normal and inferior goods? Using the concepts of the substitution and income effects, how would you define a Giffin good?
1.Let x and y denote the amount of goods X and Y. Find the demand functions of X (do not need to ﬁnd that of Y) when your preferences are represented by the utility function U = x^2y. Is X normal good? Can you conﬁrm law of demand for X? What is the relationship of X with Y? Answer all of them by using the demand curve you derived. 2.Let x and y denote the amount of goods X and Y. Find the demand functions of X (do not need to ﬁnd that of Y) when your preferences are represented by the utility function U = x + xy + y. Is X normal good? Can you conﬁrm law of demand for X? What is the relationship of X with Y? Answer all of them by using the demand curve you derived 3.There are two goods F and C. Let MU and P denote marginal utility and price of each good. SupposeMUF = 3, MUC = 4, PF = 2, PC = 2.Are you maximizing your satisfaction? If not, what would you do to increase your satisfaction? Explain.
1..Calculate the optimal quantity of each of two goods (x and y) and the consumers’ total utility given Px=1, Py=2, I=80, and U(x,y) = x1/2y. How would you represent this graphically? What is value of the utility received by consumer at optimal consumption? Explain all your steps. N.B. You can attach your explanations
Question 8 My utility over goods 1 and 2 is given by: u(x1, x2) = min {2,} Where is the quantity of good 1 I consume and 2 is the quantity of good 2 I consume. Assuming I purchase only goods 1 and 2... If a = 6, b = 7, the price of good 1 is $5/unit, the price of good 2 if $6/unit and my income is $10, how much good 2 will I consume to maximize my utility? (Note: The answer may not be a whole number, so round your answer to the nearest hundredth) (Note: The numbers may change between questions, so read carefully)
) Suppose that Sam has a utility function u(x, y)= xy2 where x is the amount of good 1 and y is the amount of good 2. The price of good 1 is $10 and price of good 2 is $20, and the income is $ 90. The price of good 1 is denoted by px and the income is donated by m. Derive the equations for demand curve for good 1