Subway has increased the price of good A from $7 to $8. As a result, their sales for good B have decreased. This implies that good A and B are: O Inferior Goods O Normal Goods O Substitutes O Complements O None of the above

Which of the following is true about utility? O Utility same for all the consumers O Utlity is subjective Utility for a good is constant O Utlity is same as usefulness

O X₁ V -IC, IC₂ IC, X₂ B X, X, B, B₂ (a) Are goods X and Y substitutes or complements? Explain. B₂ X (b) Let Y refer to all other goods. Is the demand for good X elastic or inelastic? Explain.

1. Say that there are two goods in the world, books and video games. Say that we observed two of Jim's choices: he chooses bundle A from the budget set bounded by budget line 1, and the bundle B from the budget set bounded by budget line 2. video games B A budget line 2 budget line 1 books a) For each of the two goods, based on the diagram: is the good normal, inferior, or we can't say for sure? Is the good ordinary, Giffen, or we can't say for sure? Explain. b) For which of the two budget lines is the opportunity cost of a book higher and why? What does that statement mean in the context of this model?

When income rises by 10%, the demand for Good A falls by 3%. From the above, we know Good A is O a complement a normal good O an inferior good O a substitute

Chapter 7 i 3:06 BO ☐ The substitution effect. Multiple Choice is generally so weak that its effect cannot be predicted. for an increase in the relative price of a good is sometimes positive but sometimes negative. refers to the change in the quantity demanded of a good due to a change in its relative price. measures the change in the quantity of a good demanded brought about by a change in real income associated with a change in the price of the good. 60 Saved SEP 6