A utility maximising individual has utility function u(x, y) = x¹/2y3/4, income m = 100 and faces prices px = 4 and py = 1. Suppose the price of x decreases to px = 1. Which of the following statements is correct? (i) The own-price income effect is 15.0 (1 d.p.). (ii) The own-price substitution effect is 11.2 (1 d.p.). (iii) The cross-price income effect is 27.2 (1 d.p.). (iv) All of the above are correct. (v) None of the above are correct.
A utility maximising individual has utility function u(x, y) = x¹/2y3/4, income m = 100 and faces prices px = 4 and py = 1. Suppose the price of x decreases to px = 1. Which of the following statements is correct? (i) The own-price income effect is 15.0 (1 d.p.). (ii) The own-price substitution effect is 11.2 (1 d.p.). (iii) The cross-price income effect is 27.2 (1 d.p.). (iv) All of the above are correct. (v) None of the above are correct.
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
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