Question

5) Suppose the price of hamburgers decreases. Which of the following is false?

Group of answer choices

a The income effect leads to less purchases of goods and services in general

b The quantity of hamburgers demanded will increase

c The substitution effect leads to more hamburger purchases

d Assuming a given consumer eats hamburgers, their total utility will increase

e The marginal utility per dollar of hamburgers will increase

6)

Suppose the current price of a good is $50. If the good has an inelastic demand curve (relatively steep), and a $5 per unit tax is placed on the sellers of this good, which of the following prices is the most likely new equilibrium price?

Group of answer choices

a $50

b $52

c $55

d $57

e $54

Answer 1

Answer 5. The income effect leads to less purchases of goods and services in general

reason- When price of hamburgers decreases, there is rise in purchasing power of the consumer as the same amount of hamburgers cost less money now. So there should be a rise in demand of goods and services for all goods.

Answer 6. $54

Reason- Tax=$5

Original Equilibrium Price=$50

Dmenad is relatively inelastic, so consumers must bear a larger portion of tax burden

Tax=Price paid by consumers- Price received by producer.

New Equilibrium Price $54, Consumers pay $54-$50=$4 tax and Producers pay $1 tax, which is consistent with inelastic demand.