BUS 207 Final: Study Questions for Final Exam
26 Sep 2011
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Assess the validity of the following: if true, mark true; if false, explain why the statement is false. (1) So long as the demand for cigarettes is not perfectly inelastic, an increase in price leads to a decrease in demand. At his constrained utility-maximum, paul buys a positive amount of an inferior good (x) and a luxury good (y); at this equilibrium mux/px must be less than muy/py. A 3 % increase in the price of widgets causes a 6 % increase in the demand for woozles. The two goods are substitutes since the cross elasticity of demand for woozles with respect to the price of widgets is +0. 5. The law of diminishing marginal utility means that as one consumes more of a given commodity his or her satisfaction from doing so diminishes. An increase in discretionary income (income after all bills have been taken care of) increases the quantity demanded of luxury goods.
