19. If people consume less of a good when their income increases, it is call a) a subsidy b) a compliment c) a normal good d) an inferrior good
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19. If people consume less of a good when their income increases, it is call
a) a subsidy
b) a compliment
c) a normal good
d) an inferrior good
Step by step
Solved in 3 steps
- Would you expect marginal utility to rise or fall with additional consumption of a good? Why?9) Jonathan spends his income (M) on good X and Y. His preferences are represented by theutility function(X, Y) = Ln X + LnY.The price of good Y is 1 and the price of good X is PX.(a) Derive his demand for X and Y. (b) Jonathan’s father considers X and Y as merit goods and wants to encourage his son toconsume more of them by offering him a subsidy of $1 for every unit of X that hepurchases. Suppose the initial price of X is $2, derive the substitution effect ofJonathan’s demand for X with the subsidy when his income is $20.(c) Does the subsidy increase Jonathan’s consumption of Y?(d) How does the subsidy affect Jonathan’s total spending on X and Y.(e) Instead of offering the subsidy, the father decides to spend the same amount of moneyon Jonathan by offering him an income supplement. Is this a better alternative thanthe unit subsidy in achieving the father’s objective? 12(a) Consider a perfectly competitive industry with several identical firms.The cost function of a price-taking firm…4. Tim wants to maximise his utility given his utility function of U(A, B) = A²B4. He faces the following prices and income: PA = 25; PB = 20; M = 250. However, a change in the price of good A to PA = 22 will change his optimal bundle. If he is only interested in being able to consume his original bundle of goods, how much income would he need after the price change? (a) Tim would require £54 less income (b) Tim would require £18.33 more income (c) Tim would require £10 less income (d) Tim would require £16.66 more income (e) Tim would require £16.66 less income
- 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 shirts25. What does a negative marginal utility means? Why does it happen? Explain.12. What are the mathematical steps in deriving demand and indirect utility?
- 4. Describe what is meant by a normal good. Provide a real-life example in your own words. What is an inferior good? How does a change in income impact the demand for inferior goods?1. (a) Which causes a shortage of a good--- a price ceiling or a price floor? Justify your answer with a graph. (b) What is a budget constraint? A consumer has an income of $3000. Soda costs $3 per liter and cheese costs $6 per pound. Draw the consumer's budget constraint with soda on the vertical axis. What is the slope of this budget constraint?1. An agent consumes quantity (X1,X2) of goods 1 and 2. Here is his utility function: U (x1,x2) = x13x2, his budget constraint is: p1x1+p2x2=m. (a) Calculate the agent's Marshallian demand (x*, x*2). (b) Derive the agent's expenditure function. (c) Roy's identity for good 1 states that: aV(pl,p2, m)/ х1* 3 дV (р1, р2, т) am Verify this equation (you need not verify it for good 2).
- Problem 6 Consider the following diagram that shows the effects of a decrease in the price of beer on a consumer's choice of consumption of beer and pretzels: Ber 19 17 ICI Pretzds a.) What is the value of the income effect on beer consumption of the price change? b.) Are beer and pretzels complements or substitutes?2a) Sompa's utility function for strawberries and grapes is given by U (S, G) =10s?G'. Where S represents strawberries and G represents grapes. i. Write down Sompa's budget constraint. ii. What combination of strawberries and grapes maximises Sompa's utility if her income is GHC200, the price of strawberries is GHC 5per unit and the price of grapes is GHC 10 per unit? ii. What is Sompa's total utility (satisfaction)? iv. If the price of strawberries increases to GHC15 per unit and the price of grapes and Sompa's income remain the same, discuss briefly what Sompa will have to do to maximize her satisfaction. b) Supposing strawberries was a giffen good, derive the demand curve for strawberries with this increase in price. c) Explain the notion that "on the basis of price changes goods can be classified into normal and giffen, and on the basis of income changes, goods can be classified into normal and inferior".1. What is a normal good? Give a real world example of a good where normality is not likely to be a reasonable assumption. Explain why the example you have chosen is not likely to be a normal good.