Question

The substitution effect of a price increase: A. causes the consumer to purchase more of the...

  1. The substitution effect of a price increase:

    A.

    causes the consumer to purchase more of the good whose price has risen.
    B.

    has no effect on the amount purchased of either good.
    C.

    can cause the consumer to purchase either more or less of the good.
    D.

    causes the consumer to purchase less of the good that is now relatively more expensive.

  2. There are only three consumers in the market, and their demand equations are as follows: (1) Q = 5 – 0.5P, (2) Q = 10 – P, and (3) Q = 2 – 0.2P. What is the equation for the market demand curve?

    A.

    Q = 30 – 2P
    B.

    P = 30 – 8Q
    C.

    Q = 3.75 – 0.125P
    D.

    Q = 17 – 1.7P

  3. When the price of football tickets increases, the substitution effect decreases the number of tickets bought from:

    A.

    6 to 3.
    B.

    20 to 8.
    C.

    6 to 4.
    D.

    4 to 3.
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Homework Answers

Answer #1

1. Ans: causes the consumer to purchase less of the good that is now relatively more expensive.

Explanation:

Substitution effect means when the price of one good increases, the consumer purchases less of that good and switch over to substitute goods.

Thus, option [D] is correct answer.

2. Ans: Q = 17 - 1.7P

Explanation:

Market demand is the summation of individual demand.

Q = 5 – 0.5P + 10 – P + 2 – 0.2P

Q = 17 - 1.7P

Thus, option [D] is correct answer.

3. The data or graph is missing. So, it cannot be answered.

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