Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 4, Problem 11QP
To determine
The impact of tax on relative price.
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Suppose goods A and B are substitutes. If the price of good A increases, will the demand for good B increase or decrease?
What is the difference between good x as a function of price and income and good x as a function of price and utility?
For the following statements, please indicate whether each is true or false:
A fall in the price of shoes would shift the demand curve for shoes to the right.
As the price of a product falls, the quantity demanded of that product will increase, other things equal.
According to the law of demand, there is a positive relation between price and the quantity demanded.
If the demand for potatoes increases as income decreases, economists would consider potatoes as a normal good.
If the demand for eggs decreases as the price of bacon increases, economists would consider eggs and bacon as complements.
A supply curve shows the minimum price producers are willing to charge.
The supply curve will shift upwards on a graph if the prices of inputs into production go up.
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- As the price of GOOD A increases by 20%, the quantity demanded of GOOD B increases by 10%. What is the relationship of the two goods? Show the necessary computation to support your answer.arrow_forwardFor the following statements, please indicate whether each is true or false: A fall in the price of shoes would shift the demand curve for shoes to the right. As the price of a product falls, the quantity demanded of that product will increase, other things equal. According to the law of demand, there is a positive relation between price and the quantity demanded. If the demand for potatoes increases as income decreases, economists would consider potatoes as a normal good. If the demand for eggs decreases as the price of bacon increases, economists would consider eggs and bacon as complements. A supply curve shows the minimum price producers are willing to charge. The supply curve will shift upwards on a graph if the prices of inputs into production go up. Since you answered the first three based on your policy, could I please have the answer to 4,5 and 6 pleasearrow_forwardTrue or False? Two normal goods cannot be substitutes for each other. Illustrate.arrow_forward
- Good A (an inferior good) and Good B (a normal good) are viewed by consumers to be substitute products. Suppose that the price of Good B falls at the same time that consumer income increases. What is the net effect of these two events on equilibrium in the market for Good A? an increase in equilibrium quantity and an indeterminate effect on price a decrease in both the equilibrium price and quantity an indeterminate effect on quantity but an increase in price an increase in both the equilibrium price and quantityarrow_forwardGood B and Good A are substitutes. If the price of Good A rises, what will happen to the demand curve of Good B?arrow_forwardTwo students, Nick and Sofia, are discussing normal and inferior goods. Nick says that if Frodo buys more beer when the price of beer goes up, then beer must be an inferior good for Frodo. If, on the other hand, he buys less beer when the price of beer goes up, then beer must be a normal good for Frodo. Sofia disagrees: "Normal and inferior goods are about income changes, not price changes. Therefore, we do not have enough information: beer could be an inferior or normal good in either of these cases." Do you agree or disagree? Carefully explain your point of view. Support your argument with graphs of income, substitution and total effects (please put beer on the horizontal axis and the other goods on the vertical axis). Please assume that Frodo's preferences over beer and other goods are strictly convex and satisfy "more is better" assumption.arrow_forward
- A consumer buys two goods X and Y. Suppose price of Good X falls. What will be its effect on its demand? Give two reasonsarrow_forwardWill an increase in a price of a good increase the expenditure on that good? Why?arrow_forwardExplain the Price Effect Curve below in the case when the price of good 1 upon x-axis rises whereas the price of good 2 on y-axis remains unchanged? If we connect the points, we have the price consumption curve. It shows the utility-maximizing points when the price of a good changes. X3 X2 X,arrow_forward
- When there is a change in the price of a related good, demand increases or decreases depending on the relationship between the two goods. Two economic terms describe these two relationships-substitutes and complements. An increase in the price of Good A increases demand for Good B when the two goods are substitutes. An increase in the price of Good A decreases demand for Good B when the two goods are complements.The graph shows the shift in the demand for good B when the price of good A increases depending on whether the two goods are substitutes or complements. Pick from the bold choices below. pls look at the graph. In Mexico, NAFTA had the result of lowering the price of used cars. Consider the effect of the price of used cars on the demand for new cars in Mexico. When the price of used cars in Mexico fell the Mexican demand for new cars (Increase or decrease). This would cause the new car demand curve in Mexico to (Shift right or shift left). The price of new cars in Mexico would…arrow_forwardSuppose two goods, X and Y, are perfect complements and U = MIN (X, Y). A consumer has $24 to spend. Initially, the price of each good is $2. If the price of good X falls to $1, how much of the total change in quantity demanded of good X is due to the income effect? (Hint: Sketch the graph.)arrow_forwardSuppose that a consumer has $200 to spend on two goods: beer and pretzels. The price of beer is $6.00 and the price of pretzels is $3.00. What is the relative price of pretzels? $3.00 $6.00 1/2arrow_forward
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