Top Posters
Since Sunday
6
l
6
5
n
5
N
5
m
5
j
4
s
4
4
c
4
r
4
m
4
New Topic  
rsbains rsbains
wrote...
Posts: 330
A week ago

Question 1.

The increase in consumption of a good when its price falls is caused by two effects. What are these two effects? Explain the difference between these effects.



Question 2.

Figure 10-1




Refer to Figure 10-1. Which of the following statements is true?



Quantity Q0 could be a utility-maximizing choice if the price is $5.75, but quantity Q1 may not be because we have no information on the marginal utility per dollar when price changes.



Quantities Q0 and Q1 are the utility-maximizing quantities of hoagies at two different prices of hoagies.



Quantities Q0 and Q1 may not necessarily be the utility-maximizing quantities of hoagies at two different prices because we have no information on the consumer's budget or the price of other goods.



Quantities Q0 and Q1 are derived independently of the utility-maximizing model.

Textbook 

InMicro


Edition: 1st
Authors:
Read 49 times
2 Replies
Replies
Answer verified by a subject expert
wasanwasan
wrote...
Posts: 307
A week ago
Sign in or Sign up in seconds to unlock everything.

Answer 1

The two effects are the substitution and income effects. According to the substitution effect, more is consumed when the price of a good falls because the price of the good in question is now lower relative to the prices of other goods. In addition, the fall in price increases the consumer's purchasing power causing the quantity demanded to increase for a normal good and decrease for an inferior good. This is the income effect. For most goods, the income effect is small relative to the substitution effect which is why the overall effect of a price decrease is an increase in quantity demanded.



Answer 2

Quantities Q0 and Q1 are the utility-maximizing quantities of hoagies at two different prices of hoagies.

This verified answer contains over 160 words.
1

Related Topics

wrote...
A week ago
You make an excellent tutor!
New Topic      
Explore
Post your homework questions and get free online help from our incredible volunteers.
Learn More
Improve Grades
Help Others
Save Time
Accessible 24/7
  54 People Browsing
 163 Signed Up Today
Your Opinion
What's your favorite coffee beverage?
Votes: 70

Related Images
 258
 102
 77