Respond True or False to the following, and explain why each answer is True or False:
a. If two goods x and y are perfect complements, then if the price of x falls, the entire change in demand for x is due to the income effect.
b. A consumer has the utility function given by U=min{x1,2x2}. If good 2, has a price of zero, the consumer will always strictly prefer more of good 2 to less.
c. Ivan spends his entire income on two goods. One of them is a Giffen good. If the price of the Giffen good rises, demand for the other good must fall.
d. Jimmy's utility function is U(a,b) = ab, where a is his consumption of apples and b is his consumption of bananas. If prices and income change in such a way that Jimmy's old consumption bundle lies on his new budget line, then Jimmy will not change his consumption bundle.
Respond True or False to the following, and explain why each answer is True or False:
a. If two goods x and y are perfect complements, then if the price of x falls, the entire change in demand for x is due to the income effect.
b. A consumer has the utility function given by U=min{x1,2x2}. If good 2, has a price of zero, the consumer will always strictly prefer more of good 2 to less.
c. Ivan spends his entire income on two goods. One of them is a Giffen good. If the price of the Giffen good rises, demand for the other good must fall.
d. Jimmy's utility function is U(a,b) = ab, where a is his consumption of apples and b is his consumption of bananas. If prices and income change in such a way that Jimmy's old consumption bundle lies on his new budget line, then Jimmy will not change his consumption bundle.
Related textbook solutions
Related questions
budget line
marginal utility
complete property of preferences
market demand
consumption bundle
substitution effect
Giffen good
total effect
income effect
transitive property of preferences
indifference curves
utility
the marginal rate of substitution
utility function
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1. |
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The satisfaction or benefit that consumers receive from consuming goods or services.
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2. |
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A particular combination of specific quantities of goods or services |
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3. |
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Consumers can rank all conceivable bundles of goods or services |
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4. |
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If A is preferred to B, and B is preferred to C, then A is always preferred to C. |
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5. |
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Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services. |
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6. |
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A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility. |
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7. |
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The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed. |
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8. |
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The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant. |
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9. |
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The line showing all bundles of goods that can be purchased at given prices if the entire income is spent. |
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10. |
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The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes. |
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11. |
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The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes. |
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12. |
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The sum of the substitution and income effects. |
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13. |
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A good for which quantity demanded varies directly with price, causing an upward sloping demand curve. |
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14. |
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A list of prices and the corresponding quantity consumers are willing and able to purchase at each price. |
